As the world of finance evolves, the interest in cross-border investment opportunities continues to surge, bringing both excitement and cautionRecently, domestic investors have faced a striking scenario: the price of certain cross-border Exchange-Traded Funds (ETFs) trading on the domestic stock market was set at 1.7 yuan, while similar funds could be acquired outside the market for only 1.2 yuanThis scenario resulted in a staggering premium rate nearing 40%. This begs the question: Who exactly are the investors willing to pay such a premium for these cross-border ETFs?

Since the beginning of the year, the fervor for cross-border investments has only intensified, as evidenced by the market performanceBy January 8, several Qualified Domestic Institutional Investor ETFs (QDII-ETFs) saw dramatic price increasesFor instance, the Southern Fund's Saudi ETF shot up by 8.57%, while the S&P Consumer ETF experienced a notable rise of 4.92%, among othersThis notable surge suggested an underlying enthusiasm among investors for foreign market exposure.

However, venturing into these soaring QDII-ETFs comes with a risk—one that many investors appear to overlookThe S&P Consumer ETF's price was reported to be 38.6% higher than its indicative net asset value (NAV). Similar trends were observed with other ETFs tracking the S&P 500, where premiums exceeded 10%, leading to a total of 26 different cross-border ETFs exhibiting premiums beyond 5% on the marketSuch inflated prices signify a heated atmosphere that’s attractive on the surface, yet laden with perilous implications.

The Coexistence of High Premiums and High Enthusiasm

As of January 8, the trading volume for many cross-border ETFs was exceptionally robustThe S&P Consumer ETF and Southern Fund's Saudi ETF both surpassed 4 billion yuan in transaction volume, indicating strong investor interest

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Additionally, some of these ETFs boasted turnover rates exceeding an astounding 1000%, with the German ETF joining this elite groupOn that particular day, 11 cross-border ETFs saw turnover rates exceeding 100%, a clear signal of the rampant trading activity.

The high trading volumes naturally coincided with significant price premiumsThe S&P Consumer ETF stood out as having the highest premium in the market at 38.6%, with a closing price of 1.726 yuan, contrasting sharply with its intra-day reference NAV of 1.25 yuanInvestors who sought to add this ETF to their portfolios had to pay an average price of 1.7 yuan per share, a stark reminder of the pitfalls associated with inflated trading prices.

Such a high premium in ETFs was relatively uncommon previouslyIn an attempt to mitigate potential losses for investors, the fund manager of the S&P Consumer ETF, Invesco Great Wall Fund, issued a risk warning and announced a temporary trading halt from the market's 9 a.m. opening until 10:30 a.m. on January 9.

Not only was the S&P Consumer ETF exhibiting extreme premiums, but many other ETFs linked to U.S. markets also faced similar situationsFor example, the S&P 500 ETF and the general S&P ETF were both observing premiums over 10%. Moreover, various Nasdaq-related ETFs like the Nasdaq 100 ETF and others showed premiums exceeding 8%.

Beyond U.S. market ETFs, investors have also turned their attention to other regions, such as the aforementioned German ETF with a 4.15% premium, and the Southern Fund's Saudi ETF, which jumped 8.57% in value, despite the underlying FTSE Saudi Arabia Index showing a narrow decline that day, leading to a pronounced divergence in performance and a notable 9.58% premium for that fundSimilarly, the Huatai-PineBridge Southern Fund's Saudi ETF rose by 3.91%, with a premium of 3.48%. Such discrepancies highlight the volatile reality of the investment landscape.

Don't Fall for High Premiums

As compiled on January 8, statistics indicate that 26 cross-border ETFs are trading at premiums exceeding 5%, many of which are tied to indices such as the S&P and Nasdaq, alongside oil, gas, and educational ETFs

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