Multiple cross-border ETFs continue to trade at high premiums; fund companies frequently issue risk warnings

Author: Wang Peng

Recently, global chip stocks have continued to strengthen, driving multiple cross-border technology ETFs to receive hot funding. However, while net asset values are rising, the secondary market trading prices of some products have significantly deviated from the fund’s actual net value, with high premium risks accumulating.

Despite many fund companies such as Huatai-PineBridge, Invesco Great Wall, and Guotai Fund intensively issuing risk warnings about premiums, and even taking measures like intraday suspensions to cool the market, cross-border products represented by China-Korea semiconductor ETFs are still being chased by funds, with premium rates remaining high. Industry insiders warn that as market sentiment recedes or arbitrage mechanisms take effect, the risk of high premiums falling back cannot be ignored.

Public Funds Intensively Issue Risk Warnings

Recently, with continued capital pursuit, Huatai-PineBridge’s China-Korea Semiconductor ETF’s premium rate broke through 30%.

On the morning of May 15, this ETF was suspended for one hour; during midday, the company issued another announcement, stating that trading would remain suspended from the market opening until the close of that day, and that if the premium did not effectively decline, it reserved the right to apply for temporary suspension or extend suspension times. As of the close that day, the ETF’s premium rate was still as high as 35.94%.

“Since the beginning of this year, Huatai-PineBridge Fund has issued a total of 138 risk warning notices and temporary suspension notices, and has implemented 2 intraday suspensions. This means investors can almost see a ‘warning’ from the fund companies every trading day. But what’s frustrating is that the product’s premium rate remains high,” said a third-party analyst in Shanghai to the Shanghai Securities Journal.

This phenomenon is not an isolated case. Recently, Invesco Great Wall Fund has also frequently issued risk warnings and suspension notices regarding its global chip LOF with high premiums. On May 15, Invesco Great Wall Global Chip LOF was suspended for one hour from 9:30 to 10:30. During midday, the company issued another announcement reminding investors to pay close attention to the premium risk of secondary market trading prices and to make cautious investment decisions, warning that blind investments could lead to significant subsequent losses.

In addition, several Nasdaq-related ETFs have also been in a high premium state recently, with public fund companies such as Guotai, Huaxia, and Fortis frequently issuing premium risk warning notices.

Why Are Premium Rates So High?

Regarding the phenomenon of Huatai-PineBridge’s China-Korea Semiconductor ETF maintaining a high premium rate, a Huatai-PineBridge fund official told reporters that there are mainly two reasons:

First, the rapid growth in global AI computing power demand has significantly boosted the prosperity of sectors such as high-bandwidth storage, advanced packaging, and server storage. Korean semiconductor companies, especially leading storage chip manufacturers, occupy an important position in the global AI computing industry chain. As the only ETF product in the current A-share market that can directly invest in the Korean market, the China-Korea Semiconductor ETF Huatai-PineBridge’s scarcity attracts a large influx of funds into the secondary market, with buy orders exceeding sell orders, directly pushing up trading prices in the secondary market.

Second, the China-Korea Semiconductor ETF Huatai-PineBridge is a QDII fund, constrained by rigid QDII quotas. The primary market subscription is limited, and the supply of new shares is insufficient. The traditional ETF arbitrage mechanism that smooths premiums in the primary and secondary markets cannot fully function, leading to difficulty in quickly converging premium levels in the short term.

Industry insiders believe that the high premiums of cross-border ETFs are essentially short-term price deviations driven by market sentiment. As long as sentiment remains, and funds continue to flow in, even if fund companies release some quotas to increase supply, the new shares will be quickly absorbed by market funds, and premiums tend to rebound after brief declines.

“Only when sector trends cool down and investor sentiment recedes, reducing buying power, can premiums sustain a downward trend. Ultimately, the direction of sentiment is the key to determining the trend of premiums,” the person added.

Volatility in the Semiconductor Sector Is Increasing

Recently, as the semiconductor sector has accumulated significant gains, market volatility has noticeably intensified. On May 15, the Korea Composite Index plummeted 6.12%, with major drag factors being heavyweight stocks like Samsung Electronics and SK Hynix. On the same day, the US Philadelphia Semiconductor Index plunged 4%, with chip giants Nvidia, Broadcom, Micron Technology, and Advanced Micro Devices falling 4.42%, 3.32%, 6.62%, and 5.69%, respectively.

In response to the continued rise of US chip stocks earlier, several well-known Wall Street figures have issued risk warnings: renowned “big short” Michael Burry said in late April that he had bought put options on the iShares Semiconductor ETF (expiring January 2027) and was shorting Nvidia and the Invesco Nasdaq 100 ETF, betting on a significant correction in the chip sector; Cassie Wood, founder of Ark Invest and dubbed the “female Buffett,” recently cashed out holdings in chip giants like Advanced Micro Devices, Nvidia, and TSMC at high levels.

Institutions believe that in the long run, ETF secondary market prices will inevitably converge toward net asset values. The current high premium levels already contain considerable irrational sentiment factors. Once the market turns, chasing high investors may face substantial losses, and related risks should be highly alert.

(Edited by: Xu Nannan)

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