QDII Products See Premium Rebound

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Recently, the phenomenon of premium pricing has resurfaced in the QDII (Qualified Domestic Institutional Investor) products, intriguing investors and analysts alikeOn December 26, the Huaxia Nasdaq-100 ETF issued two warnings regarding premium risks within the same day, yet these admonitions failed to mitigate the prevailing premium situation surrounding the product.

As the trading day concluded, the Indicative Optimized Portfolio Value (IOPV) premium for this ETF soared to 7.83%, marking a 0.21 percentage point increase from the previous trading dayThis surge in premiums was not an isolated event; on the same day, several other ETFs including the Fortune Nasdaq-100 ETF, Southern S&P 500 ETF, and Penghua Dow Jones Industrial Average ETF, issued similar alerts, alongside a total of 20 products experiencing premium scenarios

The Invesco Great Wall S&P Consumer Select ETF led this group with an astonishing premium of 26.21%. This high premium was backed by substantial trading volume and turnover rate.

The trend of elevated premiums was reflected across a broad spectrum of QDII productsAs of December 26, a total of 23 QDII products exhibited indicative premiums exceeding 3%, fueled by the heightened enthusiasm from investorsThe limited quota of QDII products has led to a growing number of funds ceasing or significantly restricting large-scale purchases, with over 80% of these funds halting major subscriptions or outright refusing new investments.

According to an investment research specialist in Shanghai, once external factors such as currency exchange rates and quotas are set aside, the extent of ETF premiums serves as a pivotal indicator of market sentiment and trading emotion

High premiums generally signal that a product is enjoying substantial market demandConversely, historically, such high premiums do not usually sustain over the long term, which places high-risk burdens on investors who purchase at elevated prices, potentially exposing them to capital losses as premiums retract in the short termInvestors are thus advised to maintain composure and assess the inherent risks of retracting premiums.

The Resurgence of High Premiums

In the morning session on December 26, Huaxia Fund announced that its Nasdaq-100 ETF had encountered a premium risk, alerting investors that the market trading price was significantly surpassing the reference net asset value of the fund shares, thus indicating a potentially dangerous premium scenario

As a further caution, investors were warned that blind investment could lead to substantial losses.

Following the daily close, Huaxia Nasdaq-100 ETF released another warning regarding premium riskAccording to statistics, this particular product has issued risk alerts for a total of nine consecutive trading days in December alone, contributing to 15 premium risk advisories this monthBy the end of trading on December 26, the product maintained an IOPV premium of 7.83%.

Similar occurrences unfolded within the Fortune Nasdaq-100 ETF, as well as the Bosera Nasdaq-100 ETF, which issued premium risk warnings in the afternoon session of the same dayThroughout the last ten trading days, these two funds collectively issued alerts about premium risk on 10 and six occasions respectively.

Moreover, it is worth noting that apart from the aforementioned funds, various other products such as the Southern S&P 500 ETF and Penghua Dow Jones Industrial Average ETF have also initiated similar risk alerts recently

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Statistics indicate that in the month leading up to December 26, nearly 32 different products have issued around 200 premium risk warnings—including both QDII products and certain passive index products.

As of December 26, data from Wind revealed that there were 23 QDII products with IOPV premiums surpassing 3%, among which the Invesco Great Wall S&P Consumer Select ETF claimed the highest premium rate in the entire market at 26.21%. This fund has also warned of risks for seven consecutive trading days and was suspended for an hour during this timeFurthermore, products like the Guotai S&P 500 ETF, Huifa Nasdaq-100 ETF, and Huaan Nasdaq-100 ETF displayed IOPV premiums exceeding 8%.

Despite the continuous risk warnings, trading activity for certain products has remained notably vigorous, demonstrating a significant increase in transaction volume compared to the previous month

For instance, the Invesco Great Wall S&P Consumer Select ETF recorded a trading volume of 2.68 billion yuan on December 26, whereas its average trading volume in November was merely 300 million yuan—a staggering increase by nearly nine times.

In tandem with this enormous trading volume, exceptionally high turnover rates have been observedBetween December 17 and December 26, the Invesco Great Wall S&P Consumer Select ETF showcased daily turnover rates exceeding 200%, even peaking at 646.67% on December 26. Such rates marked a sharp contrast to the mere 36.07% turnover rate recorded on December 16.

Related Nasdaq products have mirrored this trend; for instance, the seek investment or funding Nasdaq-100 ETF has averaged a transaction volume of 383 million yuan throughout December, which showcases an increase over four times compared to its November average of merely 72 million yuan.

Moreover, it is evident that several others, such as Huifa Nasdaq-100 ETF and Fortune Nasdaq-100 ETF, have also experienced over a 100% increase in their daily average transaction volumes.

Drumming up substantial investor enthusiasm, capital is flowing into these securities at an accelerated pace

Recent data indicates that among the 32 products that had issued premium risk alerts by December 25, there has been an inflow of over 9.6 billion yuan within the last month, with the seek investment or funding Nasdaq-100 ETF and Huatai Bairui Southern Dongying New Exchange Southeast Asian Technology ETF seeing net inflows of 1.849 billion yuan and 1.304 billion yuan respectively.

Multiple Factors Driving High Premiums

Financial experts characterize QDII premiums as reflections of subtle shifts in market sentiment

Amidst persistent fluctuations within the domestic market, many investors are seeking relatively higher-return fund products through QDII funds“The demand is directly supported by tangible performance results,” noted an executive from a leading fund company, further emphasizing that the limited quotas available for QDII products are significant contributors to the emerging high premiums.

This insider asserted that elevated IOPV levels signify strong investor interest—often leading to products being “hyped” beyond their intrinsic valuesMany products have exhibited high premiums consistently over several days, and despite risk warnings issued multiple times by fund companies, the premiums seem impervious to dampeningThis situation can be attributed not only to favorable market conditions but also to the breakdown of arbitrage mechanisms alongside the prevailing trend of chasing rising prices.

Statistics reveal that as of December 24, the Nasdaq and S&P 500 indices have experienced year-to-date gains of 33.44% and 26.63%, respectively, while the Shanghai Composite Index has only seen a modest increase of 14.07%. By December 25, the QDII fund index had recorded a year-to-date return of 15.83%, while equity funds yielded a meager 5.25%.

Specifically, out of the 304 QDII funds with available data, over 80% have marked positive returns this year, with 44 funds achieving over 30% return rates

The South China Emerging Economy 9-Month Holding A fund has emerged prominently with an impressive cumulative return of 49.09% since the beginning of the year.

Driven by performance, the influx of funds resulted in frequent “emergency” situations regarding QDII quotas, leading to ongoing limitations on purchasing or suspending subscription altogetherOf the products listed earlier, 209 are currently in a “closed door” state, while 54 have suspended large purchases—making a total of 263, which accounts for 86.51% of all QDII products in the market.

In contrast to last year's figures, where 202 funds had either suspended or restricted subscriptions significantly, the numbers have noticeably escalated this year.

“Alongside market variables, limitations surrounding QDII quotas and foreign exchange allocations have somewhat weakened transaction efficiency, further amplifying fluctuations in cross-border ETF premiums,” remarked a fund research expert in Shanghai

Given that fund companies face constraints on their investments in foreign markets under QDII quotas, they often have to convert RMB into foreign currency beforehand, as the foreign exchange regulatory authority also enforces limits on each fund company's ability to convert currency.

In their view, both QDII and foreign exchange quota constraints may compel fund companies to suspend primary market subscriptions or scale back purchase limits as a coping strategyFurthermore, specific products that are relatively small in scale may exhibit lower liquidity, causing funds to accrue rapidly within the secondary market—a situation that further intensifies the discrepancies between primary and secondary market forces and exacerbates premium fluctuations.

He also cautioned that allocating funds into QDII products should merely constitute one element of an overall investment framework; investors should not hastily shift all focus towards these assets purely due to their strong short-term performance because markets are naturally cyclical

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