Call it a sign of the maturing exchange traded fund (ETF) industry—2012 has so far seen a record number of ETFs close in the first nine months of the year alone. The 86 ETF closures are a signal that the industry is consolidating and clearing out product that has failed to take hold with investors.

But there are other, more positive signs of maturation, as ETFs took centre stage in China last week. While 86 ETF doors closed elsewhere, a whole new door opened in China with the launch of two yuan-denominated ETFs that track Hong Kong stocks, allowing mainland investors a chance to trade shares in the former British colony for the first time in history.

What’s interesting here is that ETFs are playing a key role for Beijing as the Chinese government seeks to liberalize what has always been a tightly controlled financial sector. With the launch of these ETFs, the government is hoping to foster domestic consumption and economic growth and give the lagging domestic stock market a necessary boost from local investors.

China’s ETF story also stands in stark contrast to the considerably less warm policy welcome ETFs have received in western countries, where they’ve been subject to blame and scrutiny. As ETFs go under the microscope in Europe and the U.S., China seems content to use them as a policy tool to further open its financial markets.

Could this be the first-ever positive response to ETFs by a policy-maker? It might just be. Now that’s a sign of a maturing asset class if I’ve ever seen one.

Copyright © 2018 Transcontinental Media G.P. Originally published on

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It’s good to see that an option guy cmnfiros my contention that derivative trading moves the underlying stocks. I agree with your point that typical investors do not understand how the daily reset affects long-term returns in leveraged ETFs.@Value Indexer: My guess is that market impact is largely driven by the amount of money invested in leveraged ETFs, which is not very high right now.

Sunday, November 25 at 10:16 am | Reply

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