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Trading in the exchange-traded fund (ETF) that tracks the MSCI
USA 50 Index was halted for the afternoon session, after a
one-hour suspension in the morning failed to reduce hefty price
premiums.
"We caution investors of the risks in the secondary market price
premiums," the ETF's manager, E Fund Management Co said in a
statement. "Investors who invest blindly could suffer major
losses."
ETFs trade like stocks on exchanges, with prices determined by
supply and demand, but also tethered to their net asset value (NAV).
This week, the price premiums of China-listed ETFs that invest
in overseas markets, such as the United States and Japan, surged
to record highs as Chinese shares plunged.
The E Fund MSCI USA 50 Index ETF last traded at 1.52 yuan
($0.2117) on Friday, 43% higher than its NAV of 1.07 yuan.
Typically, such premiums would trigger arbitrage activities
whereby the ETF manager issues more fund shares in the primary
market until the price gap vanishes.
But such a mechanism does not work for outbound ETFs in China,
where capital controls restrict overseas investment.
"Secondary ETF prices ... are affected by supply and demand, and
subject to systematic and liquidity risks, so investors could
face potential losses," said E Fund Management, which has
repeatedly warned investors of the risks this week.
($1 = 7.1788 Chinese yuan renminbi)
(Reporting by Shanghai newsroom; editing by Barbara Lewis)
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