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Following the crazy snapping up of Nikkei ETF and Nasdaq ETF, Saudi ETF has ushered in its shining moment.

On July 16, the first batch of Saudi ETFs in China were officially listed and traded. China Southern Fund's Southern East England Saudi Arabia ETF (hereinafter referred to as "Southern Saudi Arabia ETF") and Huatai-PineBridge Southern East England Saudi Arabia ETF (hereinafter referred to as "Huatai-PineBridge Saudi Arabia ETF") were listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange respectively. With the label of "Saudi Arabia Digging Gold", it attracted the attention of a large number of investors.

Wind data showed that on the first day of listing, the two Saudi ETFs opened high and closed at the daily limit, with a premium rate of more than 6%, attracting a total of 4.896 billion yuan on the day. As of July 23, the total transaction volume in 6 trading days reached 31.6 billion.

▲ (Wind screenshot)

What is the magic of Saudi ETF that attracts so many investors? What are the risks of high premium rate?

1. "Let's go to Saudi Arabia to make money"

"Shijie" learned that the two Saudi ETFs had already attracted great attention from the market before their listing.

They were all approved on June 14 and went on sale on June 24. Before they were officially listed, they raised a total of more than 1.2 billion yuan. Among them, the Southern Saudi ETF raised 634 million yuan, with a total of 14,253 valid subscribers; the Huatai-PineBridge Saudi ETF raised 590 million yuan, with a total of 7,665 valid subscribers.

On the first day of listing on July 16, the market exploded. According to Wind data, the two Saudi ETFs opened high and closed at the daily limit, with a premium rate of more than 6%, attracting a total of 4.896 billion yuan on the day. The huge transaction volume is backed by a very high turnover rate. Among them, the turnover rate of China Southern Fund's Southern East China Saudi Arabia ETF exceeded 420%, ranking first in the ETF market, and the turnover rate of Huatai-PineBridge Southern East China Saudi Arabia ETF also exceeded 330%.

As of July 23, the two Saudi ETFs took six trading days and the cumulative trading volume reached 31.6 billion.

During this period, Southern Fund and Huatai-PineBridge Fund issued several announcements to warn of transaction price premium risks, but this still did not dampen investors' enthusiasm.

Wu Zewei, a researcher at Star Chart Financial Research Institute, told Shijie that the popularity of Saudi ETF is mainly due to the fact that it provides investors with a tool to quickly and easily allocate overseas assets.

For a long time, the public is used to describe Saudi Arabia's economic strength as "white cloth covers the head, rich as oil". As the largest economy in the Middle East, Saudi Arabia is the world's largest oil exporter and the second largest oil producer and reserve country, and is known as the rich in the Middle East. The FTSE Saudi Arabia Index tracked by the Saudi ETF includes more than 50 large and medium-sized Saudi listed companies, covering representative Saudi sectors such as finance, raw materials, energy, and communications.

Baidu Stock Market shows that the FTSE Saudi Arabia Index has a brilliant historical performance. As of the latest, the index has accumulated a 40% increase since 2020. Against the backdrop of overall global stock market volatility in the past few years, its performance has significantly outperformed major indices such as the FTSE Emerging Markets Index, MSCI Asia Pacific Index, CSI 300 Index, and Hang Seng Index. The industry calls it the Saudi version of the "CSI 300 Index."

But the problem is that the investment threshold for entering the Saudi capital market through the "Saudi Qualified Foreign Investor Program" keeps most Chinese investors out. The emergence of the Saudi ETF allows the public to "make money" in Saudi Arabia through ETF products issued in the Chinese market. In addition, cross-border ETFs support T+0 intraday trading (that is, shares purchased on the same day can be sold on the same day), which can meet the market's demand for liquidity and is naturally very popular.

2. Don’t be greedy when investing in overseas ETFs

This is not the first time that overseas ETFs have become popular. Before the Saudi ETF, cross-border ETFs such as the Nikkei Index, India Index, and Nasdaq Index have all been more or less popular in China. For example, at the beginning of the year, the Nikkei ETF was once bought at a premium of more than 20%; in March, the premium rate of the Nasdaq Technology ETF exceeded 12%, rushing to the top of the ETF fund list.

Qu Fang, an investment consultant at Wanlian Securities, analyzed that investors are currently buying overseas ETFs based on the following two psychological factors: First, blindly chasing high prices. In recent years, overseas stock markets have hit new highs, and domestic investors are pursuing short-term profits; second, they are planning and allocating overseas assets. Domestic investors' demand for overseas asset allocation includes factors such as yield, stability, security, and exchange rates, and they choose to invest in overseas assets. For ordinary investors, investing in overseas assets is not only a good choice for buying houses, but also for investing in the capital market.

However, after a series of daily limit increases and a large premium that attracted attention, the "crazy" Saudi ETFs were placed under key monitoring. On July 18, Guotou Securities and other brokerages issued a reminder to investors that the two Saudi ETFs had a high premium rate recently and there was a serious risk of market speculation. The Shanghai Stock Exchange and the Shenzhen Stock Exchange will strictly identify the abnormal trading behavior of the above-mentioned securities, and take self-discipline management measures such as listing as key monitoring accounts, suspending account transactions, and restricting account transactions, depending on the situation.

Regarding the measure of "suspending account trading", some fund personnel used "pulling the Internet cable directly" to describe the regulatory intervention.

In fact, according to the public account Alpha Factory DeepFund, many people do not know that there is an industry secret hidden behind this round of Saudi ETF hype.

The public account summarized through the mouth of an industry insider that there is a systematic way to hype cross-border ETFs. The first step is to create a high premium. Of course, this is based on the fact that the index it tracks has performed quite well in the past period of time, which has stimulated investors' strong enthusiasm for allocation; the second step is to incite emotions. Some so-called "big Vs" set up groups to show their operations, which triggers retail investors to enter the market in groups; the last step is capital game. Large funds enter the market and "eliminate" the original investors and investors with primary and secondary arbitrage capabilities.

Many industry insiders also reminded "Shijie" that investors face risks associated with constantly chasing high overseas ETFs.

Wu Zewei said that mainland investors lack investment channels, and it is normal for such ETFs that invest in overseas markets to have a certain premium. However, such sharp rises and falls have obviously deviated from the normal market trading level. It is most likely the result of short-term capital speculation in the market. Investors may still have a mentality of passing the parcel, or some investors who are unaware of the truth may blindly enter the market to chase high prices.

Qu Fang also said that in recent years, with the continuous rise of overseas capital markets, the overall valuation has been significantly high, and the pressure of stock market adjustment in the short and medium term has gradually increased. As the Federal Reserve enters a cycle of interest rate cuts, capital flows will be reallocated between developed and emerging countries, which will not only lead to fluctuations in the local market, but also affect interest rates and exchange rates, thereby causing potential asset losses for investors.

It is worth mentioning that under the spotlight, the fund companies related to Saudi Arabia ETF have become unusually low-key. On the day of listing on July 16, Li Muyang, assistant director of the index investment department of Huatai-PineBridge Fund, was a guest on Xinhuanet to interpret the investment strategy, market prospects and potential investment opportunities of Saudi Arabia ETF. On July 22, its relevant personnel expressed to "Shijie" that they hope to cool down the situation.

As of July 23, the two Saudi ETFs have fallen rapidly from their highs, and have both retreated by more than 20% compared with the previous 30% increase.

Author | Chen Chang
Editor | Han Zhongqiang
Operations | Liu Shan