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Trading in broad-based ETFs tracking China’s mainland stock markets has experienced a surge this year, yet quietly, significant funds are leaving the market — with net outflows exceeding CNY700 billion (approximately USD100.8 billion). This shift comes as regulatory authorities intervene to dampen market exuberance.
From January 1 to January 26, the average daily trading volume of stock ETFs doubled compared to the same period last year, reaching CNY242.7 billion (around USD35 billion), according to industry data. While several broad-market ETFs have hit record high trading volumes, they have simultaneously faced substantial redemptions, culminating in overall net outflows of CNY738.2 billion (roughly USD106.2 billion).
Major state-owned entities are at the forefront of this sell-off. The sovereign wealth fund, for instance, reduced its holdings in nine leading broad-based ETFs—including the prominent China AMC CSI 300 ETF—by nearly 87 billion shares since the end of the previous year, based on disclosure data. At current trading prices, this reduction could be valued at close to CNY360 billion (USD51.8 billion).
Though this unprecedented divestment by government-backed firms has garnered attention, the overall exposure of these large institutions to key market indexes remains substantial, leaving space for further adjustments and gradual pace control, according to a market strategist. From a market psychology perspective, these ETF withdrawals have not yet sparked a wave of increased risk aversion among investors.
This subtle transfer of capital appears to be a deliberate regulatory strategy aimed at cooling an overheated market. Measures such as raising margin requirements and efforts by securities regulators to curb excessive speculation have successfully transitioned the market from a “fast bull” phase—with trading volumes nearing CNY4 trillion (about USD575.9 billion)—to a more sustainable “slow bull” trend.
Market analysts suggest that the authorities’ current focus is on moderating market tempo and fostering a more stable environment conducive to continued growth. As short-term speculative trading slows down, investors are likely to shift their focus from quick gains through popular ETFs to analyzing industry trends and earnings stability.
The primary catalyst behind the intense ETF outflows is the extraordinarily high trading volume, which tends to attract speculative capital and potentially destabilize market conditions. Historical episodes, such as the market surges in March 2007 and April 2015, saw rapid increases in mainland stock trading coinciding with a spike in new retail investor accounts.
Despite ongoing fluctuations, trading activity remains vigorous on the mainland. As of January 26, the average daily turnover for stock ETFs reached CNY242.7 billion (approximately USD35 billion), representing a more than 162% increase compared to the same period last year, according to industry data.
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