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Multiple Cross-Border ETFs Issue Premium Risk Warnings

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In recent times, the dynamics of the QDII (Qualified Domestic Institutional Investor) funds have been considerably influenced by the international market, resulting in heightened volatility in their net asset valuesMany fund management companies have responded by issuing warnings about premium risks associated with their cross-border ETF (Exchange-Traded Fund) productsThis proactive measure aims not only to clarify investment risks for stakeholders but also to mitigate overheating investment behavior in the market.

On the night of January 12, several prominent QDII products—such as the Nasdaq ETF from GF Fund Management, the Nasdaq Tech ETF from Invesco Great Wall Fund, and the S&P 500 ETF from Guotai Fund—released announcements regarding premium risksBy January 13, the number of QDII products issuing similar warnings had soared to 17. The spike in such notices suggests that market participants are acutely aware of the risks presented by inflated valuations.

According to data compiled by Wind, over 240 QDII products announced premium risk alerts since the beginning of this year

Most of these alerts concern cross-border ETFs, which cover a variety of indices including the Nasdaq 100, S&P 500, S&P Oil and Gas, Nikkei, and Southeast Asia Tech ETFsThe preponderance of these warnings signals a tumultuous market environment, with underlying factors contributing to volatility that may be beyond just basic market fluctuations.

From these announcements, it has become evident that several fund companies are concerned about their products trading substantially above their net asset valuesThey caution investors to remain vigilant concerning premium risk on secondary market trading prices, warning that impulsive investments could lead to substantial lossesFactors such as supply-demand dynamics, systemic risks, and liquidity risks can influence the trading prices of these ETFs in unpredictable ways.

Cross-border ETFs, a specific category under QDII funds, invest primarily in international markets

Observing recent market activities reveals that the volatility of many cross-border ETFs has seen a surgeFor instance, on January 10 during the closing session, several of these ETFs experienced a drastic decline, with intraday dips exceeding 10 percentage pointsAdditionally, multiple fund companies announced that their cross-border ETFs would be suspended from trading starting from January 10. Such interventions indicate a concerted effort to stabilize the funds amidst prevailing market conditions.

In response to the elevated premium risks associated with investing in foreign assets, numerous fund companies have imposed suspensions or limitations on large-scale purchases of their QDII fundsFor example, on January 7, Huatai-PineBridge Fund Management Company declared it would restrict large-scale purchases of its Huatai-PineBridge Nasdaq 100 ETF from a previously permissible amount of 20,000 yuan to just 1,000 yuan

Other products following suit include the Jianxin Nasdaq 100 Index (QDII) and the Guotai S&P 500 ETF Initiating Connection (QDII), reflecting a growing trend toward cautious fund management.

Industry professionals emphasize that the move to pause or limit large-scale purchases of cross-border ETF products by fund companies is driven by several critical factorsThe foremost objective is to effectively address the high premium risks associated with these fundsGiven their international investment focus, these ETFs operate within a more complex trading mechanism and market environmentSome cross-border ETFs are relatively small in size, which presents liquidity challengesWhen the overall market becomes overheated, significant inflows can occur rapidly, motivated by short-term gainsHowever, the supply of fund shares cannot readily increase in response to this sudden demand, leading to substantial premiums where trading prices greatly exceed actual net asset values.
Furthermore, this strategy also seeks to curtail speculative behavior

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With high premium expectations prevalent in the market, some speculators attempt to exploit the trading rules surrounding cross-border ETFs, undertaking large purchases and redemptions to realize quick profitsSuch activities not only disrupt normal trading operations but can severely interfere with the institution's ability to operate smoothly.

From the perspective of smooth fund operations, allowing high premium risks and speculative actions to flourish could hinder the effective execution of the fund's established asset allocation and investment strategiesThe unregulated flow of large capital inflows and outflows can place immense pressure on fund managers, who may struggle to make timely investment decisions or maintain appropriate asset distribution ratios, ultimately affecting overall fund performance.
Moreover, for the wider community of fund holders, the protective measures are self-evident

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