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On August 5, overseas markets continued to fall, with the Japanese stock market "leading" the plunge. At the same time, the decline of many cross-border ETFs further expanded, and even hit the limit down. As of the close, the Nikkei 225 Index fell 12.4% in a single day, and the top 30 of the ETF market's single-day decline list were all occupied by cross-border ETFs.

After this drop, the net value return of some products has turned from profit to loss. Taking the Nikkei 225 ETF (Hua'an Mitsubishi UFJ Nikkei 225 ETF), which has the largest drop, as an example, the net value of this fund has wiped out all the gains since the beginning of this year and returned to the level around November last year.

In the long run, the QDII funds that previously performed well have generally been on a "roller coaster" recently, with returns rapidly narrowing this year. With the adjustment of performance, the speculative sentiment of funds has quickly cooled down, and the pace of entry has slowed down. Currently, only the Huaxia Nomura Nikkei 225 ETF has a premium rate of more than 5%, and the high premium status of other cross-border ETFs has been alleviated, and some high-premium products have even been discounted.

"Against the backdrop of increasing disturbances in the external markets, the probability of global funds flowing back to Chinese assets has increased." A cross-border investment research expert in North China told Caixin that the probability of A-shares and external markets plummeting simultaneously is relatively low. Currently, my country's A-shares have reached the bottom and have limited room for decline.

However, he also analyzed that considering that external risks have not been completely cleared, it is expected that the A-share market will continue to fluctuate at the bottom in the short term. "But external risks do not constitute the main contradiction for the time being, and the signal of increasing domestic policies to stabilize growth has strengthened. The bottom support of the market remains solid, and the probability of market stabilization has further increased. The allocation strategy of A-shares is also expected to usher in a turning point." He said.

QDII funds plunge

On August 5, following the sharp drop in US stocks last Friday, overseas markets continued to correct, and the volatility further increased. In the morning, the Nikkei 225 Index and the Topix Index both fell by more than 7%, and the Topix Index futures even triggered the circuit breaker mechanism. As of the close, the Nikkei 225 Index fell by more than 4,451 points in a single day, falling below the 32,000-point mark.

In the afternoon, many cross-border ETFs plunged sharply, and even hit the limit down. Among them, Nikkei 225ETF fell 10.02%, and Nasdaq Technology ETF, Nikkei ETF, Asia Pacific Select ETF, Nikkei 225ETF E Fund and other products fell more than 9%. As of the close, the top 30 ETFs in the ETF market's single-day decline list were all occupied by cross-border ETFs.

Regarding the sharp drop in the Japanese stock market, Yang Delun, chief economist of Qianhai Kaiyuan Fund, believes that on the one hand, it was due to the Bank of Japan's second interest rate hike this year, raising the benchmark interest rate from 0~0.1% to 0.25%, which led to a rapid appreciation of the yen and hit Japan's export trade industry. On the other hand, the slowdown in the US economic growth and the sharp drop in US stocks also increased the decline in the Japanese stock market.

The aforementioned North China investment research person told the reporter that the recent huge shock in the external market was due to the fact that many important economic data in the United States were far below expectations, and market recession trading quickly heated up. On the other hand, the crowded trading in U.S. stocks and the U.S. dollar in the past two years has loosened, increasing market volatility.

A leading QDII fund manager told China Business News that the sharp drop in US stocks can be analyzed from two aspects. From a fundamental perspective, the recently released US non-farm payrolls data was significantly lower than expected, the unemployment rate increased, and market expectations began to shift to a rapid recession in the US economy, so risky assets were sold off. At the trading level, technology stocks have continued to rise in the past few years, and market hotspots have increasingly concentrated on a few popular stocks, and market liquidity has also been declining.

"Therefore, once there is a shift in expectations, volatility will be amplified." In the view of the fund manager, Intel's two consecutive quarters of losses became the trigger for investors to sell its stock.

In the long run, the volatile trend of U.S. stocks began after the release of U.S. CPI data on July 11, and the Nasdaq index once retreated more than 10% from its high; this trend spread to the Asian market, and the Japanese stock market continued to fall during the same period, with the Nikkei 225 index falling nearly 25% during the same period.

Affected by this, the performance of QDII funds has also fluctuated greatly. Before the decline began, QDII funds could be called the "most beautiful" in the entire market. Wind data showed that as of July 10, the average annual return of 301 QDII products with data (only initial funds were counted) was 6.79%, and 17 products had annual returns of more than 20%.

As of August 2, the average annual return of QDII products had shrunk to 2.43%, only one-third of it remained; the only product with an annual return of more than 20% was the Invesco Great Wall Nasdaq Technology Market Capitalization Weighted ETF.

From July 11 to August 2, more than 40% of QDII products fell by more than 5%, and products such as Jianxin Emerging Markets Preferred A, Tianhong Global New Energy Vehicle A, and Tianhong Global High-end Manufacturing A fell by more than 14%. Among them, the annual return of Jianxin Emerging Markets Preferred A fell from 41.32% to 16.77%, while Tianhong Global New Energy Vehicle A turned from positive to negative, shrinking from 15.49% to -1.02%.

The performance of cross-border ETFs is even more obvious. As of August 2, the average return of 128 cross-border ETFs turned from profit to loss, from 3.16% to -0.83%. So far, 26 cross-border ETFs have fallen by more than 10% this year, with the Bosera CSI Global China Education ETF, Bosera Hang Seng Healthcare ETF, Wells Fargo Hang Seng Hong Kong Stock Connect Healthcare ETF, and Southern Hang Seng Hong Kong-listed Biotech ETF leading the decline, all above -26%.

The hype is cooling down

"Overseas markets as a whole are in a risk-off mode." An analyst from Morgan Stanley Fund told China Business News that the Federal Reserve's interest rate meeting stated for the first time that a rate cut in September is an option, the impact of inflation factors has decreased, and the downward trend in employment deserves more attention.

The US manufacturing PMI further contracted from 48.5 in June to 46.6 in July. The new non-farm payrolls data released over the weekend were significantly lower than expected, and the unemployment rate rose to 4.3%. Against this backdrop, US stocks fluctuated more, the US dollar index fell sharply, the RMB against the offshore dollar rose above 7.15 during Friday's intraday trading, and the US Treasury bond interest rate fell below the important mark of 4%. "At this point, the Fed's September rate cut has almost become a certainty, and the key lies in the extent of the rate cut, which is expected to be no less than 75bps this year," the person said.

"As the impact of overseas factors increases and overseas stock markets fluctuate violently, A-shares will inevitably be affected to a certain extent." The above-mentioned Morgan Stanley fund analyst further analyzed that, however, it should be noted that since domestic investors' expectations are already relatively sufficient, overseas marginal trends are downward, and the interest rate gap between China and the United States is converging, the pressure of net outflow of northbound funds may be alleviated.

Wang Yitang, an analyst at West China Securities, believes that as U.S. stock valuations are at a relatively high level, the market expects that the U.S. interest rate cut cycle is approaching, and rising unemployment has strengthened expectations of a recession, coupled with the impact of earnings season on some important heavyweight stocks, the U.S. stock market is expected to remain prone to a correction in the coming period.

In fact, the collective plunge of cross-border ETFs has also calmed down the previously crazy influx of funds. According to statistics from China Business News, the net inflow of cross-border ETF funds has declined for two consecutive weeks, with the weekly net inflow falling from 7.232 billion yuan to 4.083 billion yuan, while the net inflow in the week of August 2 was 3.251 billion yuan.

At the same time, some cross-border ETFs have experienced net outflows of funds, such as 39 products including the Hong Kong Stock Connect Dividend ETF, Hong Kong Technology ETF, and Hang Seng High Dividend ETF. Among them, products such as the China-Korea Semiconductor ETF, the Hong Kong Stock Connect 50 ETF, and the Hong Kong Stock Technology ETF have been "bleeding" for two consecutive weeks.

On the other hand, as the market corrects and the speculation of funds cools down, the high premium space of cross-border ETFs that was continuously raised in the early stage is also shrinking rapidly. On July 10, there were 9 products with IOPV (real-time net value) premium discount rate exceeding 5%, and the IOPV premium discount rate of Nasdaq Technology ETF and Asia Pacific Select ETF exceeded 10%.

On August 5, the number of cross-border ETFs with an IOPV premium-discount rate of more than 5% dropped to one, namely, the Hua Xia Nomura Nikkei 225 ETF with an IOPV premium rate of 5.9%. Previous high-premium products such as the Asia Pacific Select ETF, Nasdaq ETF, and S&P 500 ETF have already experienced discounts.

Taking the Asia Pacific Select ETF as an example, Wind data shows that the fund had accumulated a 23.82% increase in the five trading days from July 3 to 9, and its IOPV premium rate soared to 20.47%; but since July 10, the Asia Pacific Select ETF has entered a correction range, and as of August 5, the cumulative decline has exceeded 30%, and its IOPV premium rate has also dropped to -0.2%.