As global stock markets experience heightened volatility, attention is shifting towards cross-border ETFs, particularly those that are smaller in scale and more accessible for tradingThe trend of increasing speculative investment in these cross-border ETFs has raised alarms due to significant premium fluctuationsSome products are even seeing their prices surge while underlying indices dip, with premium rates soaring above 38%, indicating a substantial risk of overvaluationIn spite of repeated warnings from fund companies about these risks, investment into cross-border ETFs continues to grow, drawing significant interest from capital.

On January 8, following declines in the three major U.Sstock indices, 15 cross-border ETFs, including the S&P Consumer ETF and the NASDAQ 100 ETF, issued notifications about the risks associated with premium pricingSome of these products even faced a temporary halt in trading for an hour due to soaring premiums

For example, on the same day, the S&P Consumer ETF reported that its trading price in the secondary market exceeded its reference net asset value significantly, prompting a warning for investors to be cautious regarding this premium riskThe ETF was scheduled to cease trading until 10:30 AM to protect investor interests.

However, when trading resumed at 10:30 AM, the S&P Consumer ETF saw a remarkable surge, closing the morning session with a 4.5% increase and a premium rate that spiked to 38.04%. The intraday trading was characterized by volatility, dipping into negative territory at one point but recovering sharply towards the end of the dayIt finally finished with an increase of 4.92%, pushing the premium rate to 38.6%, while the turnover rate soared to 1028.91%. This impressive trading activity resulted in a total daily turnover of 6.064 billion yuan, despite the ETF's circulating value being just 600 million yuan.

Examining the longer-term trends, it has been noted since early December that the market price of the S&P Consumer ETF has diverged significantly from the performance benchmark, the S&P 500 Consumer Select Index

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On January 7, the premium for this ETF crossed 38% before settling back to 30.05% by the end of the dayThe day before, it had a standout performance that led to a temporary trading halt due to its excessive premium at the openUpon resuming, it continued to rally and almost hit its trading limits, finishing the day up by 10%.

Other ETFs, such as the S&P 500 ETF, also reported significant premiums, with rates of 15.67% and 10.09%, respectivelyIn total, 26 cross-border ETFs have premiums surpassing 5% in the market.

The emergence of these high-premium ETFs can be attributed to their characteristics, which include the ability to trade on a T+0 basis, limited on-market trading volume, a small number of holders, and lower liquidityThese characteristics make them ripe targets for speculative activityThe S&P Consumer ETF and the S&P 500 ETF have both reported circulating values of under 600 million yuan, with the former having just 1,798 unique holders as of mid-last year

Typically, these ETFs average daily trading volumes in the tens of millions, but can see volumes balloon by several hundred times when speculation kicks in—evident on January 8 when the S&P Consumer ETF registered a turnover of 6.064 billion yuan.

Experts point out that in a sense, smaller circulated funds are being treated as micro-caps by speculators, especially given the current market's subdued profitabilityMore investors are diversifying their portfolios by increasing the proportion of overseas assetsHowever, due to foreign exchange quotas, many fund companies temporarily cease off-market subscription once their own foreign exchange limits are reached, pushing investors to buy related on-market productsThis causes an imbalance whereby on-market fund net values exceed those of corresponding off-market funds, further inflating the premium ratesThis pattern invites more speculative purchases of on-market ETFs, often disregarding premium risk warnings.

Data indicates that specific high-premium ETFs have witnessed substantial inflows of capital recently

For instance, the S&P Consumer ETF saw 181 million yuan in net inflows over the past month, exhibiting a more than 40% increase in sizeThe NASDAQ 100 ETF also enjoyed net inflows of 558 million yuan over the same period, marking a 36% growth.

It's important to note that due to their smaller trading scales, price fluctuations in these funds can lead to significant volatility, with rapid changes in price action becoming commonplaceThis susceptibility has been observed frequently in the ETF market; for example, on December 26, certain ETFs were briefly halted after reaching their daily gains limits, only to experience significant drops again the following day.

In light of these drastic market movements, numerous fund companies are issuing urgent alerts urging investors to remain watchful of premium risks in secondary market transactions, warning of potentially devastating losses from impulsive investments

This year alone, nearly 150 premium risk notices have been issued across the industry, with the S&P Consumer ETF reporting premium risk for 25 consecutive trading days since early December.

Li Lingbing, a researcher, emphasizes that fund net value is the true indicator of a fund's intrinsic valueThe manifestation of inflated premium rates suggests a disconnection between price and fundamental value, elevating the likelihood of a market correctionInvestors should remain vigilant regarding both premium rates and market trends, developing sound risk management strategies to safeguard their investments.

An ETF manager from a mid-sized public fund in Shanghai remarked that fluctuations in on-market prices and speculative activities may reflect a small group of holders making spontaneous movesHowever, an investment strategy focused on high premiums poses a risk of experiencing a double threat from potential premium declines and drops in underlying assets