Chinese investors’ craze for ETFs tracking US stocks triggers suspensions, warnings
- Elevated premiums and price fluctuations of ETFs tracking the Nasdaq and S&P 500 indices lead to warnings from many fund managers
A record-breaking rally on Wall Street has enticed Chinese investors to chase exchange-traded funds (ETFs) that track the Nasdaq and S&P 500 indices, prompting warnings from fund managers of the investment risks.
A handful of such ETFs listed on the mainland’s stock exchanges are trading at a significant premium to their fair values and there have been some aberrations in their price movements as well.
The Shenzhen exchange on Thursday morning suspended trading in Invesco Great Wall Fund Management’s ETF tracking the Nasdaq 100 index for an hour until 10.30am for unusual price movement. Before the suspension, the fund’s last closing price represented a 15 per cent premium to the net asset value. On Wednesday, too, trading in the fund was halted for the first hour.
“The trading price on the secondary market is obviously higher than the fund’s reference net asset value, creating a significant premium,” Shenzhen-based Invesco Great Wall said in a statement on Thursday. “We thereby remind investors to pay attention to the risk premium on the secondary market. Blind investment may incur big losses for investors.”
The trading suspension was mainly to protect investors, the statement said, adding that the fund’s market price may also be swayed by demand and supply, and systemic and liquidity risks beyond the changes in the book value.
The warning by Invesco Great Wall was followed by China Asset Management, Bosera Asset Management and Guotao Asset Management issuing similar statements this week.
