On February 6, after a brief suspension in trading, nine highly anticipated currency ETFs faced a significant decline once they resumed tradingBy the time the market closed, both the Guotai Currency ETF and the Huatai Zijin Daily Gold ETF had hit their daily loss limit, which is a staggering drop for these financial instrumentsThe other seven ETFs in the group also recorded substantial losses, dropping anywhere from 3% to 7.5%. Additionally, the trading volume of these products increased greatly, indicating an unusual level of investor activity.

A public fund manager commented on this situation, stating, “There was a shift in investor demands for liquidity and yields both before and after the Spring Festival holidaysMany investors bought shares before the holiday and sought to take profits afterwardsThe currency ETFs, which had seen sharp increases prior to the holiday, were relatively small in scale—typically in the million or ten-million range—making them susceptible to price volatility

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Therefore, the significant premium during the holiday was followed by the anticipated drop once trading resumed.”

Another analyst specializing in fixed income from Northern China elaborated, emphasizing that “the fundamental nature of money market funds is of lower risk and higher liquidityThey should not be viewed as short-term speculative instrumentsIt is critical for investors to understand the positioning of these products to avoid herd mentality.” He highlighted the volatility surrounding currency ETFs and cautioned about risks related to market fluctuations and liquidity.

This disconcerting picture closely mirrors what has been observed in the realm of cross-border ETFsRecently, some cross-border ETFs that previously exhibited high premiums have seen their prices correct downwardThis correction has led to a lessened disparity in premiums when compared with the trading environment prior to the Spring Festival

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Importantly, funds have begun to shift focus towards products concentrated on the Hong Kong stock market, leading to increased transaction volume and turnover rates there.

After the unraveling of price extremes, the nine currency ETFs that were previously halted saw a tumultuous reopeningDue to erratic price movements ahead of their halt, trading for these ETFs was suspended on February 5, and upon their resumption the next day, they did not reflect the hoped-for recovery in pricesThe initial trading hour on February 6 saw conspicuous losses for several ETFs, including the aforementioned Guotai Currency ETF and Huatai Zijin Daily Gold ETF, both reaching their limit down thresholds.

Ultimately, the closing figures revealed that aside from those two significant losses, the Rongtong Currency ETF and the Harvest Quick Line ETF saw declines exceeding 8%, specifically at 8.73% and 8.27%, respectively

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The Guangfa Currency ETF, Guolian Daily Profits Currency ETF, Jinying Enhanced Currency ETF, Huatai Currency ETF, and Huaan Currency ETF all followed suit, with losses ranging from 3% to 7.5%.

Concerning trading volumes, these products experienced a noticeable increaseFor instance, the daily trading volume for the Harvest Quick Line ETF reached 9.1762 million yuan, an astonishing rise of 4.7 times compared to its average daily trading volume in JanuaryAdditionally, the Rongtong Currency ETF and Guolian Daily Profits Currency ETF also demonstrated a more than threefold increase in their daily transaction volumes.

The unusual movement in currency ETFs can be traced back to developments before the Spring FestivalOn January 24, multiple currency ETFs saw a hike in their prices, even reaching their ceiling limits on the trading boardBy the close of that trading day, the Guotai Currency ETF had hit the upper limit, while the Guangfa Tili Currency ETF and Penghua Tili ETF both registered rises of 9.95% and 9.86%, respectively.

Accompanying these dramatic increases was a noticeable spike in both transaction volume and turnover rates, with eight of the currency ETFs doubling their turnover rates on that day

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The top performer, Guolian Daily Profits Currency ETF, had a remarkable turnover rate of 3.5 timesFurthermore, on the same day, the once-booming Guotai Currency ETF boasted a daily transaction volume of 3.8271 million yuan, which jumped to 12.4392 million yuan the following day.

Upon closer examination, it’s apparent that the products experiencing significant fluctuations typically maintain smaller scales, with all nine of the resumed currency ETFs having assets under management of less than 50 million yuanFor instance, both the Guotai Currency ETF and Huatai Zijin Daily Gold ETF, which saw respective closing figures of 23.16 million yuan and 11.04 million yuan, remained significantly smallerIn stark contrast, larger ETFs such as Huabao Tanyi ETF or Yinhua Daily Profits ETF did not experience similar volatility.

Experts from Huatai Securities Asset Management explained that short-term price fluctuations in currency ETFs are primarily influenced by market trading behaviors, trading volumes, and the scale of tradable shares

Such premiums could result in heightened investment risks, prompting investors to adopt a more rational perspective regarding market volatility to avoid blind speculation.

Several commentators pointed out that recent concentrated buying in the market has led to the unusual surge in some currency ETFs, which may be attributed to a rush in fund management requirements ahead of the Spring FestivalInvestors in equity markets, feeling uncertain, might have sought refuge by reallocating funds into stable financial tools to secure short-term gains and mitigate risksThis shift undoubtedly fueled demand for currency ETFs.

The fixed-income researcher reiterated that ETFs with relatively low turnover are particularly vulnerable to short-term capital impactsAn influx of buying could quickly amplify secondary market prices, instigating pronounced volatilitySuch moments can lead to reckless notional investing, further exacerbating price fluctuations

Investors should recognize that currency funds primarily function as cash management tools and avoid treating them as avenues for speculative short-term trades.

The high premium issue has been recurrent in cross-border ETFs as wellPrior to the Spring Festival, a plethora of cross-border ETFs were caught in a price inflation frenzyEven with multiple warnings about potential risks and trading suspensions, some cross-border ETF products maintained their speculative momentum, resulting in soaring trading volumes.

However, signs of cooling off began to emerge as the final trading day before the festival approached, when many high-premium cross-border ETFs adjusted their pricingAs demonstrated, the Harvest Germany DAX ETF fell more than 15% over two days, while the Southern Fund's FTSE Asia Pacific Low Carbon Select ETF dropped 14.67% over three consecutive trading days.

Despite these declines, the premium rates for these affected products, while still elevated, showed signs of improvement

The Harvest Germany DAX ETF’s latest implied open value premium rate stood at 27.98%, down 23.43 percentage points from a high of 51.41% noted on January 23. Similarly, the Southern Fund's FTSE Asia Pacific Low Carbon Select ETF recorded a premium decline of 21.03 percentage points, standing at 14.95%.

Consultants voiced concerns regarding the speculative tendencies in the market, particularly towards smaller-scale ETFsHigh premiums often signal an overheated trading environmentShould premiums normalize and approach net asset values, the market would need to rise later on for profits to materialize, raising red flags for investors chasing such inflated valuesThis imbalance signals higher risk relative to potential returns.

As of February 6, reports indicated that 33 cross-border ETFs still maintained premium rates exceeding 3%, with six surpassing 10%. The peak was noted at the Invesco CBF S&P Consumer Select ETF, with a premium rate of 41.11%. This ETF’s premium rate has continuously stayed above 27% for 14 days and its turnover rate has exceeded 1x for the past 27 days.

Interestingly, in addition to the mentioned products, numerous ETFs targeting the Hong Kong stock market have recently attracted significant investment

On February 6, the Dazhong Hang Seng Healthcare ETF and the Yinhua Hang Seng Hong Kong Stock Connect Chinese Technology ETF had turnover rates exceeding 10x, marking them as the highest within the cross-border ETF sphere.

The Dazhong Hang Seng Healthcare ETF alone recorded a transaction volume of 458 million yuan, an eye-popping increase near 150 times from the previous day’s figure of 3.0488 million yuanFurthermore, the Wanjia CSI Hong Kong Stock Connect Innovative Drug ETF’s turnover rate surpassed 4x, boasting nearly a 49-fold increase in transaction volume compared to prior periodsEvidently, some short-term traders have shifted their strategies.

On the trading board, multiple ETFs such as the Xingyin CSI Hong Kong Stock Connect Technology ETF soared to the upper limit, and others including the Dazhong Hang Seng Healthcare ETF, Huaxia CSI Hong Kong Stock Connect Automotive Industry Theme ETF, Guangfa CSI Hong Kong Stock Connect Automotive Industry Theme ETF, Huatai Beirui Hang Seng Innovative Drug ETF, and Harvest Hang Seng Healthcare ETF all registered gains greater than 4%.