China’s mutual fund houses are trying to tamp down investors’ enthusiasm for US stocks, putting new restrictions on buying into their products as demand soars.
China Asset Management Co. halted subscriptions into a pair of mutual funds that invest in exchange-traded funds tracking the Nasdaq-100 and S&P 500, according to its statement Wednesday. The firm warned of a rising premium on one of its ETFs, and said restrictions are meant to protect investors and ensure stable fund operations.
Bosera Asset Management Co. is also seeking to cool investor zeal, limiting the daily purchases of mutual fund products linked to the Bosera Standard And Poor’s 500 ETF QDII to 1 million yuan ($139,440). Investors buying the ETF directly, however, would not be subject to the restriction.
The firms’ moves reflect attempts to mitigate possible fallouts from domestic investors’ frenzy in chasing US stock gauges’ new highs, which stand in stark contrast to the Chinese stock benchmark that sank to fresh five-year lows.
Restricting purchases of these mutual fund products that track the popular US ETFs would close off one channel for many Chinese investors to participate in the rally abroad. The move also erects a barrier for investors who conveniently buy into ETFs with easy-to-use fund distribution platforms, like the Alipay app, because they don’t have a securities account.
A Bloomberg report that Chinese authorities are planning a 2 trillion yuan stabilization fund may only offer fleeting respite for the world’s most battered equities this year. Traders’ appetite for stocks has increasingly shifted overseas, with 49 mutual funds and ETFs that invest in overseas assets launching in 2023, Bloomberg-compiled data show. That’s the most on record.
In a move to sift out small investors, ChinaAMC also said in a filing that it’s requesting a minimum of 1 million shares for subscriptions and redemptions into its ChinaAMC Standard and Poor’s 500 ETF QDII fund. The ETF rose 7.6% to close at a record Wednesday. A day earlier, turnover had surged to more than 100 times the average in the past two months.
The premium on the ETF also reached as high as 18% on Wednesday, according to local fund tracker East Money Information Co. Premium spikes for ETFs are created when investors’ aggressive bids drive the fund price to exceed the value of the net underlying asset.
But domestically traded ETFs investing in overseas assets often carry a premium for longer because most mainland investors don’t have offshore stock accounts and face capital controls.
With Japanese stocks also gaining traction this year, Chinese investors have mostly ignored risk warnings and sought out the China AMC Nomura Nikkei 225 ETF, whose premium soared to as much as 21%. But cracks may be showing, with the ETF falling 6.3% Wednesday.
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