Chinese individual investors are desperate to shift their money out of the country—and they are willing to pay a big premium to do so.
Chinese individual investors are desperate to shift their money out of the country—and they are willing to pay a big premium to do so.
The best example of their desperation: Some this week have been buying funds that offer exposure to Japanese stocks at a 20% premium to what those stocks are worth.
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The best example of their desperation: Some this week have been buying funds that offer exposure to Japanese stocks at a 20% premium to what those stocks are worth.
An exchange-traded fund launched by China Asset Management Co. traded at a 14% to 20% premium to its indicative net asset value over the first three days of the week.
The ETF became so popular that China AMC halted its trading for an hour on Thursday, a move also taken by another firm. It warned investors about the big difference between the fund’s price and its net value and said investors could suffer heavy losses if they invest blindly.
The premium came down to 5% on Thursday.
“The current craze for U.S. and Japanese stocks is no different from the panic buying of real estate, bitcoin, and gold by Chinese aunties years ago,” said Qi Wang, chief investment officer at UOB Kay Hian’s wealth management division, referring to Chinese mom-and-pop investors, who have a huge influence on stock prices.
Earlier this week, China’s top government body urged stronger measures to stabilize markets and boost confidence.
The frenzied buying of Japanese and U.S. ETFs is a sign of how tough it will be for authorities to shift investor sentiment in a stock market that is mired in a yearslong slump.
The benchmark CSI 300 index lost 11.4% of its value last year, cementing its third year in a row of declines. That has pushed Chinese investors overseas, including to Japan and the U.S., where stocks boomed in 2023.
Four China-listed ETFs tracking Japan’s Nikkei 225 index recorded about $3.3 billion in trading volume this week as of Thursday, putting it on track to become the busiest week on record, according to Wind, a financial-data provider.
Chinese investors have also flooded into ETFs tracking the U.S. stock market. Another China AMC ETF tracking the S&P 500 closed Wednesday at an 18% premium to its net asset value, according to Wind. The premium shrank to 5.8% on Thursday after the fund manager also halted its trading for an hour.
Foreign investors pulled out of China’s stock market in droves last year, after an early-year rally made way for a prolonged slump amid questions about the country’s economic recovery. Individual investors in the country are increasingly joining the exodus.China’s hundreds of millions of individual investors are the biggest source of volumes in the stock market. Last year, they shifted their money into safer assets, including money-market funds, after losing confidence that the stock market would turn around.
Write to Rebecca Feng at rebecca.feng@wsj.com
