China fund managers warn of premium risks as fresh quotas fail to ease demand
Several Chinese mutual funds investing in US stocks have warned investors about risks associated with hefty premiums to their net asset values, highlighting persistent demand for US equities even after Beijing expanded quotas for outbound investment. At least six fund houses, including China Asset Management, Hua An Fund Management and China Universal Asset Management, issued warnings after the…
Chinese mutual fund managers have cautioned investors about risks stemming from significant premiums to their funds' net asset values. Despite China expanding quotas for outbound investment, demand for US equities remains high, leading to persistent premium valuations. Six fund companies, such as China Asset Management and Hua An Fund Management, have issued warnings following substantial price surges above net asset values.
For example, an ETF managed by China Asset Management traded at a 6.3% premium to its net asset value, while a biotech-focused ETF traded at a 6% premium. A high premium implies the fund's price is far above its intrinsic value, potentially signaling a future decline to more realistic levels. While elevated premiums pose risks, they also underscore robust investor appetite for US equities as China seeks diversification amid low domestic yields and a weak property market.
Beijing's recent approval of $6.84 billion in fresh quotas for foreign securities investment has not alleviated the supply-demand imbalance, with many funds still capping daily purchases by individual investors. China's policy of restricting direct retail investment in overseas securities through the QDII program has limited outbound flows.
Since 2006, China has authorized 337 QDII products with a combined quota of $183 billion for investments in assets like US stock and commodities. BlackRock, the world's largest asset manager, recently secured approval to sell QDII funds in China. Despite elevated oil prices and rising Treasury yields, US stocks remain popular among Chinese investors due to exposure to artificial intelligence and market stability.
The Nasdaq 100 achieved a record high last week, reflecting investor confidence. Chinese tech stocks, however, have struggled, with the Star Market 50 index still recovering from a severe sell-off in July. Global investors have demonstrated increased enthusiasm for US stocks, with net purchases reaching an all-time high of $426 billion in the second quarter, surpassing the previous record of $942 billion over the 12-month period ending July.
However, net buying of US Treasuries declined to $188 billion in the same period, reflecting a shift in investor preferences.
Written by urgent.news from SCMP Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
