Following their debut on the market yesterday, which saw them traded at a premium, two Saudi ETFs once again rose by more than 10% on July 17th. By the close, the IOPV discount and premium rates for both Huatai-PineBridge South East England Saudi Arabia ETF and Southern Fund South East England Saudi Arabia ETF exceeded 15.6%, leading among similar products. This surge in popularity was met with an "emergency cooling" response from the fund managers, who issued four risk warning announcements within two days.

The high premium has become one of the hallmarks of some cross-border products. This year, the fervor for domestic cross-border ETF speculation has not waned, with the total number of premium risk warning announcements for QDII products exceeding 670. Behind the continued high premiums of these products lies a significant amount of capital, with both turnover and turnover rates increasing.

Industry insiders believe that in addition to market support, the high premiums of cross-border ETFs are also the result of the failure of arbitrage mechanisms and market sentiment chasing gains. However, high premiums come with high risks; investors have to pay a cost far exceeding the true value of the fund to "chase highs," and if market sentiment reverses, those who bought at high levels may face significant losses.

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Saudi ETFs opened high and surged

On July 17th, the two Saudi ETFs tracking the FTSE Saudi Arabia Index continued the upward trend from the previous day, opening high and surging, with both rising by more than 10% in the morning. By the close, Huatai-PineBridge South East England Saudi Arabia ETF and Southern Fund South East England Saudi Arabia ETF each rose by 10.02% and 10.01% respectively, ranking first and second in terms of ETF market returns for the day.

At the same time, market enthusiasm for these two products was high, with daily turnover reaching 1.51 billion yuan and 738 million yuan respectively, totaling nearly 2.25 billion yuan. Among them, the turnover rate for Huatai-PineBridge South East England Saudi Arabia ETF exceeded 200%, while the turnover rate for Southern Fund South East England Saudi Arabia ETF reached 91.77%.

The reporter noticed that on the first day of listing (July 16th), these two products were "hotly traded" by capital, with shares being exchanged repeatedly throughout the day, with turnover rates of 427.67% and 307.63% respectively, and a combined turnover of 4.896 billion yuan; by the close of the day, their IOPV discount and premium rates were 6.31% and 6.18% respectively.

After the close on the 17th, the IOPV discount and premium rates for both Huatai-PineBridge South East England Saudi Arabia ETF and Southern Fund South East England Saudi Arabia ETF exceeded 15.6%, leading among similar products. This led to Huatai-PineBridge Fund and Southern Fund issuing four announcements in two days, warning investors about the premium risk in secondary market trading prices.

However, this "warning" action did not dampen the enthusiasm of investors. Wind data shows that as of July 17th, the circulating shares of Huatai-PineBridge South East England Saudi Arabia ETF increased from 590 million to 640 million, while Southern Fund South East England Saudi Arabia ETF increased from 634 million to 670 million, with the former rising by 50 million shares in two days and the latter increasing by 45 million shares.

At the same time, the reporter noticed that information on the official website of the China Securities Regulatory Commission on July 17th showed that Huatai-PineBridge Fund and Southern Fund have each reported a Saudi ETF linked fund, and currently, the application materials for both products have been received by the regulator.Why are Saudi ETFs garnering so much attention? Fund managers have indicated to journalists that, on one hand, as the importance of global asset allocation continues to rise, domestic investors are paying increasing attention to the Middle Eastern market. On the other hand, due to the relatively restricted access to the Saudi capital market, it is quite challenging for domestic investors to directly invest in the Saudi stock market, and Saudi ETFs offer a convenient tool for this purpose.

Some industry insiders believe that, given the A-share market is still seeking stability, some cross-border ETFs tracking overseas markets have performed relatively well. For domestic investors, one of the most direct ways to allocate to related overseas stock indices is to purchase relevant ETFs or QDII funds.

There is a traceable pattern to the speculation of funds.

In fact, the high premium performance of ETFs is not an isolated case. This year, the enthusiasm for speculation in domestic cross-border ETFs has not waned, and high premiums have become one of the labels of these products. Some products have astonishing premiums that have even attracted regulatory attention and have been designated as key monitoring targets. Journalists have noticed that behind these high-premium products, a large amount of capital is revolving around them.

According to statistics from First Financial, as of July 17th, taking QDII products as an example, this year alone, there have been 56 products (calculated separately for different shares, the same below) that have cumulatively issued 671 fund premium risk warnings. Taking the Nasdaq Technology ETF as an example, the product has issued 93 risk warning announcements this year, but it has not been able to prevent the influx of capital.

Wind data shows that since February of this year, the monthly transaction volume of the Nasdaq Technology ETF has exceeded ten billion yuan, with the transaction volume in June approaching thirty billion yuan (29.509 billion yuan), nearly doubling month-on-month. From the beginning of July to the 17th, the transaction volume of the product reached 17.808 billion yuan, temporarily ranking third for the month.

At the same time, even with intermediate declines and adjustments, the market enthusiasm has not been "cooled down." As of July 17th, the Nasdaq Technology ETF has had IOPV premium rates exceeding 10% for 30 consecutive trading days, but the fund shares still increase by 6 million shares daily. Currently, the latest fund share count for the product is 6.14 billion shares, more than double the 2 billion shares at the beginning of the year.

In the view of industry insiders, the premium rate of ETFs cannot be maintained at a high level for a long time. "High premiums come with high risks. Once market sentiment reverses, or the arbitrage mechanism takes effect, the premium narrows or even turns into a discount, investors who buy at high levels may face significant losses and need to be vigilant about profit-taking positions switching the battlefield at any time," said a securities firm representative.

Observations show that the speculation of funds also has a traceable pattern. Behind the continuous high premiums of some products are the simultaneous increases in transaction volume and turnover rate. "Some investors may be driven by herd behavior, exhibiting irrational exuberance and speculative behavior, which to some extent has driven up the price," a fund professional from South China told the journalist.

Taking the Asia-Pacific Selection ETF as an example, Wind data shows that the fund had a cumulative increase of 23.82% during the five trading days from July 3rd to 9th, with the IOPV premium rate rising from 0.75% to 20.47%; at the same time, its transaction volume increased from 130 million yuan per day to nearly 1.4 billion yuan, and the turnover rate also soared from 11.71% to 925.33% before falling back to 789.4%.On July 10th, the Asia-Pacific Select ETF plummeted by 6.11%, yet its single-day turnover rate still exceeded 925%, with a single-day transaction volume reaching 1.963 billion yuan, and the IOPV premium rate remained at a high of 12.73%. In the following four trading days, the Asia-Pacific Select ETF continued to decline, with a cumulative drop exceeding 13%, and its IOPV premium rate also fell to 1.62%.

There are also many products with high premiums. In the view of industry insiders, the surge in trading volume of some cross-border ETF products may be due to speculative trading by funds, but it also reflects real investment demand. "The subscription limit for cross-border ETFs is often low, and it is difficult to have enough arbitrage funds to suppress the premium when the market is enthusiastic," said the aforementioned person from South China.

"Cross-border ETFs with a certain premium rate are actually quite common in actual trading. There will always be a difference between the product's actual value and the secondary market trading price," said a fund manager specializing in cross-border themes. Generally speaking, the most direct reason for the premium is that the index it tracks has performed particularly well in the past period, triggering investors' enthusiasm for allocation. In the short term, funds have accelerated into cross-border ETFs, forming a premium phenomenon.

He further stated that in addition to this, some newly launched targets may experience a shortage due to their small scale. On the other hand, the T+0 trading mechanism and quota restrictions of QDII-ETFs further amplify the possibility of high-frequency trading. Therefore, this kind of premium space is continuously raised, which actually reflects investors' high enthusiasm for overseas investment.

Another securities firm also has a similar view. He believes that whether the QDII quota of the ETF fund is limited is a key factor affecting the operation of the ETF primary market redemption mechanism. "If the QDII quota is limited, the primary market redemption mechanism may fail, and the ETF's market price will be mainly determined by the buyers and sellers in the secondary market. At this time, the ETF's market price may be significantly premium compared to the ETF's net value."

According to the reporter's understanding from the industry, in order to alleviate the high premium phenomenon in the secondary market trading, some companies have adjusted the quotas of some popular products, hoping to reduce unreasonable premiums. "After all, the quota is limited, and we still hope that investors will not blindly chase high, allowing the product's trading price to return to a reasonable range," said a fund person from the relevant product to the reporter.

Wind data shows that as of the close on the 17th, there are 20 cross-border ETF products with an IOPV discount rate exceeding 3%. In addition to the Saudi ETF, the IOPV discount rates of the Nasdaq Technology ETF and the Dow Jones ETF are 13.05% and 8.27%, respectively. In addition, the IOPV discount rates of products such as the S&P 500 ETF, the Nasdaq ETF, the French CAC40 ETF, and the Nikkei ETF all exceed 5%.