As we step into 2025, the A-share market continues to navigate through turbulent waters, with the Shanghai Composite Index trading around the 3200 point markBy January 21, the index had recorded declines of 3.26%, 1.05%, and 2.6% year to date for the Shanghai Composite Index, Shenzhen Component Index, and CSI 300 Index, respectivelyAmid this corrective phase, various funds are keenly positioning themselves through exchange-traded funds (ETFs).

Recent statistics reveal that over 37 billion yuan has flowed into equity ETFs since the beginning of January as of January 20. A dichotomy in fund flow patterns has emerged: broad-based ETFs like the CSI 300 and the CSI A500 continue to attract significant capital, while sectors such as robotics, chips, and artificial intelligence are prominent favoritesAdditionally, certain newly minted ETF products have garnered substantial interest from institutional investors.

One prominent figure in the market, Meng Lei, a Chinese stock strategist at UBS Securities, elaborates on the trend of long-term capital inflow from institutions such as insurance and pension funds

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These entities advocate a patient accumulation strategy, gradually drawing in interest as factors like corporate governance and fundamental improvements present themselves as favorable conditions for long-term investments.

Upon digging into the capital flow data, one can note that broad-based ETFs are the most sought-after productsSpecifically, ETFs tracking the CSI 300 index saw over 20.9 billion yuan in net inflows this year, indicating a strong appetite for diversified investment avenues.

As for the CSI A500 index, which thrived in the last quarter of 2024, it remains a focal point for institutional investmentHowever, market fluctuations have led to diminishing inflows, with some products even showing signs of outflowsDespite this, the cumulative assets of the 26 listed CSI A500 ETFs now stand at an impressive 263.2 billion yuan, making it the second-largest broad-based ETF segment after the CSI 300.

Relatedly, ETFs tracking smaller indices like the CSI 500 and CSI 1000 have also seen upticks in investment

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As of the reporting date, net inflows reached 2.3 billion yuan and 1.8 billion yuan, respectivelyConsequently, both segments have now crossed the 100 billion yuan threshold in asset size.

Examining themed industry products reveals an exciting trend as sectors like robotics and artificial intelligence have attracted billions in fresh capital since the year's startETFs dedicated to these sectors, including China Asset Management's CSI Robotics ETF and E Fund's CSI AI ETF, have reported inflows exceeding 400 million yuanIn contrast, sectors such as baijiu (a traditional Chinese liquor) and broader consumer goods have witnessed significant capital exits, highlighting a potential shift in investor sentiment.

Interestingly, the trading activity of equity ETFs has moderated as of lateAs of January 21, the single-day transaction volume for equity ETFs was recorded at 78.9 billion yuan, indicating a near 40% decrease from the month's onset

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Month-to-date averages also reflect a decline, with the daily transaction volume averaging around 93.2 billion yuan compared to 98 billion yuan in the previous month.

The institutional rush to acquire index products further emphasizes a broader strategic shiftOver the last month, more than 20 ETF products have been issued, capturing the attention of various institutional players, including brokers and insurance companiesA case in point is the CITIC Securities A500 ETF, which launched on January 14 and quickly raised nearly 2 billion yuan, predominantly backed by institutional investors such as CITIC itself and Guotai Junan Securities.

Such actions have spurred interest in other newly launched ETFsFor instance, the GF SSE STAR Market AI ETF debuted on January 15, boasting a robust mix of institutional stakeholders among its top ten holders, many of whom are brokering houses and private equity firms

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This trend of institutional investment suggests a growing recognition of ETFs as crucial assets within portfolios, with many institutional investors pivoting from actively managed equity products to ETFs.

Meng Lei continues to highlight a compelling narrative involving long-term capitalAs the Shanghai Composite Index hovers around 3000 points, the resilience of ETFs showcases a willingness among long-term investors to support the capital market, particularly when prices dipHe hints that the current range of 3100 to 3200 points is likely to be supported by this patient capital.

Delving into the reasons behind the growing interest in broad-based ETFs reveals interesting insights“Broad-based ETFs serve as a fundamental building block or stabilization tool for A-share investments,” says Yin Hao, a fund manager at Boxin Fund's index and quantitative investment department

“They provide a disciplined and diversified approach to investments, particularly valuable during periods lacking a strong industry trend.”

Experts from Morgan Stanley express that 2025 might continue the positive trend seen in the latter half of the previous year, driven by cyclical adjustments and increased consumer spendingWhile projections outline a gradual recovery in household income and the property market, overall A-share profitability may improve albeit modestly.

Focusing on nascent avenues, such as artificial intelligence, is where they see particular promiseAs Chinese tech firms rapidly catch up with global AI leaders, advances in AI technology and decreasing costs bolster an optimistic outlook for AI applicationsThe year 2025 is seen as a potential landmark year for AI implementation.

Tracking the A-shares since the market rebound in the third quarter of 2024, tech stocks have exhibited encouraging performance