In the five trading days leading up to the long holiday, it can be said that the A-share market experienced a great miracle day. The Wind All A index rose by 26.03% in five trading days, and the Wind Equity-Biased Mixed Fund Index increased by 21.18%.

Chinese assets continue to soar! During the National Day holiday, the Hang Seng Technology Index rose by more than 13%, the State-owned Enterprise Index rose by more than 10%, the Hang Seng Index rose by more than 9%, and the NASDAQ Golden Dragon China Index rose by more than 11%.

01

A large influx of funds into ETFs

A historic change has occurred in this round of market movement: a large influx of funds into ETFs, with ETFs becoming the sharpest spear in the surge.

Data shows that 75% of ETFs outperformed the Wind Equity-Biased Mixed Fund during the surge. There were 65 ETFs that rose by more than 40% in 5 trading days, among which the ChiNext 100 ETF Huaxia, ChiNext Value ETF, Financial Technology ETF Huaxia, ChiNext Comprehensive ETF Huaxia, Food and Beverage ETF, Consumer 30 ETF, STAR Market 100 ETF Huaxia, and STAR Market 50 ETF all rose by more than 40% in the five trading days before the long holiday.

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In the past history, during the bull market phase, equity ETFs generally rise faster than actively managed equity funds because equity ETFs operate at high positions, giving them stronger offensive capabilities in a surging market.

ETFs have become one of the important channels for investors to quickly get on board. Since September 24th, in just 5 trading days, A-shares and Hong Kong stocks-related ETFs have received more than 110 billion yuan in net inflows of funds.

Broad-based ETFs are favored by funds, among which the CSI 1000 ETF, SSE 50 ETF, STAR Market 50 ETF, CSI 300 ETF Huaxia, and CSI 500 ETF Huaxia have recently received net inflows of 7.188 billion yuan, 6.093 billion yuan, 2.534 billion yuan, 1.684 billion yuan, and 732 million yuan, respectively.Exchange Traded Funds (ETFs) have become a significant source of incremental capital in the A-share market. The latest scale of ETFs has surpassed 3 trillion yuan, with the total market size of ETFs reaching 3.41 trillion yuan by the end of September, and there are a total of 986 ETFs in the two markets.

02

Why ETFs May Be a Better Choice for Market Participation

It is not difficult to observe that both national teams and foreign capital have focused their increased holdings of Chinese assets on ETFs this time. Compared to buying stocks directly, the advantages of ETFs lie in, on one hand, avoiding individual stock risks, and on the other hand, their low trading costs, high efficiency of capital utilization, flexible and efficient investment, and simple and transparent operation.

In fact, ETFs are a mainstream investment tool in mature markets. There was a century-long bet where Warren Buffett wagered against a hedge fund manager, stating that an ETF index fund would outperform these managers after 10 years. At the time, not many people paid attention to it. After 10 years, when the bet was revealed, the ETF index fund chosen by Buffett significantly outperformed the hedge funds.

In the midst of the U.S. stock market's bull run, people worked hard to select stocks, only to find in the end that they still underperformed the ETF index funds. Even most hedge fund managers who graduated from prestigious business schools could not escape this rule.

The father of index funds, John Bogle, once said: "Those who consistently hold index funds earn the most not in money, but in time, in life—by not frequently trading in and out, not fussing around every day, you can save a lot of time and energy, and also save a substantial amount of transaction fees, allowing you to enjoy life more."

For investors who are not good at stock selection and do not have time to study individual stocks, buying stock ETFs is a simple and direct way to participate in the stock market.

Firstly, ETFs can meet the needs of diversified investment and portfolio allocation. ETFs effectively track the performance of major indices, helping investors share in the dividends of capital market development.

Secondly, ETFs cover multiple markets and sectors, which can help investors invest in different industries and share in the dividends of growth.Furthermore, stock ETFs are baskets of stocks that can be purchased with a relatively small amount of capital, providing a portfolio of stocks. This increases the likelihood of acquiring good stocks compared to buying individual or just a few stocks, and it significantly reduces the risk of encountering problematic investments.

Lastly, investing in a portfolio requires much less investment knowledge and skill compared to investing in individual stocks.

In summary, compared to purchasing single stocks, ETFs are characterized by their ease of use, peace of mind, and effort-saving nature, making them a suitable tool for many professional investors and seasoned investors as part of their asset allocation strategy.

03

How to Choose ETFs?

When it comes to selecting ETFs, many experienced investors opt for those issued by larger fund companies.

Generally, larger fund companies with a diverse range of products have weathered various market conditions and thus possess greater credibility and experience.

For instance, Huaxia Fund, known as the "big brother" in the ETF industry, has a first-mover advantage and consistently leads the industry. Wind data indicates that, as of the end of the second quarter this year, Huaxia's non-cash ETF scale reached 471.02 billion yuan, exceeding the second place by about ten billion yuan.

Recently, Hong Kong stocks have seen a continuous surge, with the Hang Seng Technology Index rising over 43% year-to-date and the Hang Seng Index rising over 35% year-to-date. Hong Kong stocks have led the global major indices in terms of gains, surpassing major stock indices in the United States, Japan, Singapore, and other global markets.

ETFs tracking the Hong Kong market have sparked widespread discussion. Under Huaxia's umbrella, there are Hong Kong stock ETFs such as the Hang Seng Internet ETF, Hang Seng Technology Index ETF, Hang Seng Healthcare ETF, Hang Seng China Enterprises ETF, and Hang Seng Dividend ETF, among others.Hong Kong stock ETFs track indices that represent the Hong Kong stock market, with all constituent stocks listed on the Hong Kong market. For instance, the Hang Seng TECH Index ETF tracks the Hang Seng TECH Index, with the top ten weighted constituent stocks including Meituan, JD.com, Alibaba, Kuaishou, Xiaomi Group, Tencent Holdings, Li Auto, SMIC, and others.

Compared to A-shares, the Hong Kong stock market covers some unique industries, such as internet and biopharmaceutical companies that are not listed on the A-share market. For some companies that are listed both in A-shares and Hong Kong (AH companies), there is a certain price difference, and H-shares are often valued more cheaply. The Hong Kong stock market operates on a T+0 trading system, and Hong Kong ETFs also follow the T+0 trading system, meaning that they can be sold on the same day they are bought during the trading session.

The advantage of Hong Kong ETFs is that they can be traded using an A-share account without the need to open a Hong Kong stock or Stock Connect trading account. Generally, one can buy a hand of Hong Kong ETFs for just a few hundred yuan.

Additionally, broad-based index ETFs are also a key focus for Huaxia Fund, with a wide range of broad-based ETFs covering different styles such as growth value and different market capitalizations.

It is worth mentioning that investing in the ChiNext board requires more than two years of stock investment experience and an average asset value of 100,000 yuan over the last 20 trading days before opening; investing in the STAR Market requires more than two years of stock investment experience and an average asset value of 500,000 yuan over the last 20 trading days before opening.

Moreover, the ChiNext and STAR Markets have many high-priced stocks, with a single hand of 100 shares often costing tens of thousands of yuan. Betting on a single stock carries uncontrollable risks and occupies a significant portion of capital. Therefore, many experienced investors choose to invest through ETFs.

For example, the ChiNext 100 ETF Huaxia tracks the ChiNext Index, the STAR 50 ETF tracks the STAR 50 Index, and the STAR 100 ETF Huaxia tracks the STAR 100 Index, with a low capital threshold of just a few hundred yuan per hand, making the participation threshold low and the capital utilization rate higher.

In addition, the market has been concerned about a recent issue: what to do if an ETF hits its upper limit and cannot be bought?

One can consider subscribing to an ETF feeder fund outside the exchange. As long as there are no purchase restrictions, one can subscribe to the ETF feeder fund. An ETF feeder fund invests 90% or even 95% of its assets in the corresponding ETF.

In summary, the current market sentiment is bullish, but it is important to maintain a good mindset and avoid chasing gains and cutting losses. Choose a fund that suits you, face it with a positive attitude, and earn money within your circle of competence.