The first batch of CSI REITs all-income index funds has been assembled; an additional $1.2 billion in incremental capital will enter the market in stages.

Securities Times reporter Yu Shipeng

As of July 8, the first batch of China-CSI REITs All-Returns Index fund products (hereinafter “REITs funds”) have all completed fundraising, and their issuance performance is also impressive. During the fundraising period, four products either ended early or even saw a situation of one-day sell-out through proportional allocation. Assuming a scale of 300 million yuan per product, the four products will bring 1.2 billion yuan in incremental funds; after their establishment, they will gradually build positions and enter the market.

Interviewees said that if the first batch of products can form a demonstration effect, more fund managers will follow with new issuances in the future. Looking further ahead, the combination of incremental funds and continuously expanding asset categories has the potential to reshape the REITs market’s supply-demand cycle.

Four funds complete fundraising and are about to enter the market

According to a July 8 announcement by E Fund, the E Fund REITs index fund ended its fundraising early on July 6. The confirmation ratio for valid subscription applications on July 6 was 86.649750%, rounded to two decimal places as 86.65%. On July 8, a notice from China International Fund stated that the China International REITs fund ended its fundraising on July 7; because the cumulative amount of valid subscription applications (excluding fundraising-period interest) exceeded a 300 million yuan fundraising cap, it will make partial confirmations of the July 7 valid subscription applications using a “deadline proportional confirmation” method. For Huaxia Fund, its REITs funds ended fundraising early on July 6. For Southern Fund, its REITs funds even ended fundraising on the day they opened for sale on July 1; the final confirmed allocation ratio was 81.20%. This fund was established on July 3, with a fundraising size of 299 million yuan and 1,107 accounts of valid subscriptions.

It should be noted that the above four funds are FOF-style index products. Their performance benchmark is the China-CSI REITs All-Returns Index return x 95% + the time-deposit benchmark interest rate x 5%. The allocation to the index constituents and alternate constituents of the underlying index is not less than 90% of the fund’s net asset value.

“As an initial attempt by four public funds in the REITs investment space, they have received market recognition, with some products ending fundraising early and even seeing proportional allocation and one-day sell-out. Based on a 300 million yuan fundraising cap, the REITs market will receive 1.2 billion yuan in incremental funds.” A REITs investment research professional at a Beijing-based public fund company told Securities Times.

China International Securities research believes that the entry into the market of the first batch of four REITs funds brings incremental funds, but the actual position-building scale and pace are constrained by product rules, market liquidity, price volatility, and block trading resources. In the short term, index constituent securities with relatively high weights, a potential buying scale that is larger relative to average daily trading value and float proportion, and a stronger upward trend may benefit more. In the medium to long term, it will help expand the investor base, improve liquidity, and drive resources toward high-quality leading companies. As of July 8, the net value of the Southern REITs fund that was established first shows zero, as it has not built positions yet.

Potential incremental funds could reach several tens of billions of yuan

Further on, the first batch of REITs funds tracks the China-CSI REITs All-Returns Index. The index was launched at the end of 2022, and the four products above are its first batch of linked funds. As of the latest updates as of July 8, the index includes 51 underlying assets, covering more than 60% of the total number in the market and more than 70% of total market capitalization. It includes mature infrastructure projects with stable cash flows such as expressways, affordable rental housing, warehousing and logistics, and industrial parks, and it also covers emerging infrastructure assets such as wind power, photovoltaics, and data centers.

A senior executive at a South China-based public fund told Securities Times that, based on a 300 million yuan fundraising cap per product, the China-CSI REITs All-Returns Index can still accommodate more index funds. If the operation of the first batch of products can form a certain demonstration effect, more managers should follow with launches. At present, there are about 30-plus management companies for public REITs. If one company issues one product, the potential entry scale of public funds could reach several tens of billions of yuan.

It is also worth noting that among the current 132 REITs products, about 86 have been listed, while the remaining 46 products are in the filing or review stage, including more than 10 commercial real estate REITs. In the view of the aforementioned REITs investment research professional, this means that in addition to the roughly ten major asset categories currently covered by public REITs, there is likely to be richer and more diverse underlying asset supply in the future, including traditional assets such as pensions and also new asset types that the market is more期待 about.

Zhu Jie, Deputy Director of the Infrastructure Investment Management Department at China Merchants Fund, analyzed that currently China’s domestic public REITs market has formed a “two-wheel drive” pattern led by infrastructure and commercial real estate. In terms of approval timelines, the申报 and review cycle for infrastructure REITs is generally 10 to 15 months. Commercial real estate REITs can be directly filed with the CSRC and the Shanghai and Shenzhen Stock Exchanges for review; the entire cycle is generally 4 to 6 months. The shortening of approval timelines has promoted concentrated filings of commercial real estate REITs.

REITs market liquidity is expected to improve

The incremental funds brought by fund listing and the new categories enabled by expansion of underlying assets could reshape the supply-demand cycle of public REITs. If liquidity in the secondary market continues to improve, the efficiency of the REITs supply-demand cycle could further rise.

China International Securities believes that the current liquidity of public REITs can be summarized as: total liquidity is still acceptable, the structure has worsened, and layering has intensified. The leading assets still have a certain degree of liquidity, while the trading depth and shock-absorption ability of mid-to-lower-tier assets have been weakened.

According to Wind statistics, between June 1 and July 8, there were three asset categories whose transaction amounts exceeded 2 billion yuan: commercial real estate, consumer infrastructure, and transportation infrastructure. The transaction amounts for other assets such as park infrastructure and warehousing/logistics were less than 2 billion yuan, and some assets had transaction amounts below 500 million yuan.

In terms of the China-CSI REITs All-Returns Index’s performance, after a prior period of deep decline, the index has begun to rebound gradually in recent days. According to Wind statistics, as of the close on July 8, out of the 10 trading days since June 25, there were 6 trading days when the China-CSI REITs index rose, with a cumulative gain of nearly 5%. Among the 8 trading days from June 25 to July 6, the index recorded 6 positive candles.

“After going through cycles of rises and declines in the secondary market, public REITs will gradually return to rational pricing.” A REITs research professional at a small and mid-sized public fund told Securities Times. Based on past trends, the secondary market of public REITs has evolved through three stages: (1) an initial non-rational rally driven mainly by资金; (2) a deep adjustment under dual pressure from fundamentals and liquidity; and (3) a rational allocation led jointly by the denominator side and the numerator side once the policy framework became clear. Although the market is still in the process of rational reversion, the policy environment, valuation and pricing, and investor structure have all matured earlier than in the initial stage.

A real-estate strategy analyst at a Shenzhen-based public fund believes that before the first batch of REITs index funds, public REITs had already consecutively received multiple streams of incremental funds, including FOF and secondary-debt fund “fixed income plus” strategies. Under factors such as low interest rates, the logic for incremental funds from brokers and insurance capital entering the market remains valid. Coupled with the high dividend-paying characteristics of public REITs and relatively controllable drawdowns, they still offer relatively high value for large-class asset allocation.

(Editor: Xu Nannan)

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