news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

China Fund News reporter Zhang Yanbei

The global capital market fluctuated violently, and cross-border ETFs plummeted across the board on Monday, with some products hitting the limit down. Under the recent continuous adjustments in the external markets, cross-border ETFs continued to fall, and the premiums of some previously high-premium cross-border ETFs narrowed significantly.

Cross-border ETFs such as Japanese and US stocks fell sharply

Some ETFs hit the daily limit

Overseas markets began to fluctuate sharply last Friday night, with the three major U.S. stock indexes falling across the board, with the Dow Jones Industrial Average down 1.51%, the S&P 500 down 1.84% and the Nasdaq down 2.43%.

Driven by pessimistic sentiment, Asia-Pacific stock markets suffered a heavy blow at the opening on Monday, August 5, and continued the downward trend of last Friday throughout the day, with all sectors falling sharply.

Among them, Japanese stocks led the decline in Asian markets. The Nikkei 225 index closed down 12.4%, the largest single-day drop in history, giving up all the gains so far in 2024. In terms of industry sectors, the financial and export sectors led the decline. The South Korean Growth Enterprise Market Index plummeted 12.71%, triggering the circuit breaker mechanism during the session. As of the close, both the Korean and Taiwan stocks fell by more than 8%, setting a record for single-day declines.

The sharp decline in the external market has led to a sharp drop in the secondary market of cross-border ETFs listed on the Shanghai and Shenzhen Stock Exchanges. Wind data shows that as of the close of August 5, all 128 cross-border ETFs in the market closed in the red.

Among them, 33 cross-border ETFs fell by more than 5%. Specifically, the Nikkei 225ETF and Nasdaq Technology ETF hit the daily limit, the Nikkei ETF, Asia Pacific Select ETF, and Nikkei 225ETF of E Fund fell by more than 9%, and the Japan Topix Index ETF and China-Korea Semiconductor ETF fell by more than 8%.

Cross-border ETF premium narrowed significantly

In the long run, US and Japanese stocks have continued to perform poorly recently. In the first three weeks, the Nikkei 225 index fell by 2.74%, 5.98% and 4.67% respectively. As for US stocks, the Nasdaq has fallen by more than 10% since its peak in early July, entering a technical correction range.

As a result, overall, the secondary market of cross-border ETFs investing in US stocks and Asia-Pacific markets has fallen relatively sharply. According to Wind statistics, the average cross-border ETF in the market has fallen by 10.42% in the past three weeks, with more than 60% of them falling by more than 10%, and no fund has achieved an increase.

Among them, the Nasdaq Technology ETF has fallen by 20.46% and is the only cross-border ETF that has fallen by more than 20%. In addition, the Asia Pacific Select ETF, Nikkei 225 ETF, Nikkei 225 ETF E Fund, China-Korea Semiconductor ETF, Nikkei ETF, and Japan Topix Index ETF have fallen by more than 15%.

After the recent continuous corrections, the premium rates of some previously high-premium cross-border ETFs have narrowed significantly. Currently, the premium rate of Nikkei ETF (Hua Xia) ranks first, reaching 6.22%, and the premium rate of Nikkei ETF (ICBC Credit Suisse) is 3.55%.

The latest premium rates of other cross-border ETFs are all below 3%, and the premium rate of the Nasdaq Technology ETF, which has the largest decline, has narrowed to 2.41%. In the previous trading day, the premium rate of the Nasdaq Technology ETF was as high as more than 10%.

Previously, due to the high premium, many cross-border ETFs issued premium risk warnings. On August 5, China Asset Management announced that the secondary market trading price of its Nikkei ETF was significantly higher than the reference net value of fund shares, with a large premium, and investors were reminded to pay attention to the premium risk of secondary market trading prices.

As a cross-border ETF favored by funds, the Nasdaq Technology ETF has issued about 20 secondary market trading price premium risk warning announcements since July and has been suspended frequently.

Stay on the sidelines for Japanese stocks until positive factors change

Why did the Japanese stock market plummet? After the plunge, how will the Japanese stock market perform in the future? Some fund companies shared their views.

ICBC Credit Suisse Fund Management analyzed that the decline in Asia-Pacific stock markets on August 5 may be related to factors such as the weaker US employment data in July and the hawkish interest rate hike by the Bank of Japan. On August 2, the US Department of Labor released July employment data. As of July, the US unemployment rate has triggered the "Sam's Law" (that is, the average unemployment rate for three months is 0.5 percentage points higher than the low point of the previous 12 months). Historically, this indicator is a precursor to economic recession.

In addition, ICBC Credit Suisse Fund Management said that the Bank of Japan announced a 15BP rate hike on July 31, which was the first rate hike since the lifting of the negative interest rate policy in March this year. At the same time, the Bank of Japan also decided to gradually reduce the scale of Japanese government bond purchases. Considering the background of continued recovery of Japan's inflation expectations and significant depreciation of the yen, the market had expected the Bank of Japan to raise interest rates and shrink its balance sheet. However, the market reacted violently, and the yen appreciated rapidly, which may be related to the hawkish expression of the minutes of the Bank of Japan's policy meeting in June.

Huaxia Fund reviewed the market and said that data showed that since the Japanese Ministry of Finance intervened in the foreign exchange market on July 11, the yen exchange rate has appreciated significantly. In the same period, coupled with the weak US CPI data and the lower-than-expected US technology stock earnings, the Japanese stock market fell 24.8% in total under the resonance of unfavorable internal and external factors. The Bank of Japan's unexpected interest rate hike and the rapid shift of the US economy from a trade rate cut to a trade recession are the main reasons for the sharp adjustment of the Japanese stock market this time.

First, as a global source of low-cost funds, the unexpected interest rate hike is not only bad news for Japanese stocks, but also transmitted to the global market, having a significant impact on the reversal of global carry-trade expectations; secondly, Japanese companies are highly dependent on global market revenue. Under the expectation of yen appreciation brought about by interest rate hikes, corporate profits will be adversely affected by exchange rates; the expectation of a recession in the US economy has led to the possibility of a decline in overseas demand for Japanese companies.

In terms of allocation recommendations, China Asset Management believes that the current round of sharp adjustments in Japanese stocks is due to the resonance of internal and external factors, so the future market stabilization requires the joint changes of two factors. First, the unexpected interest rate hike and the high target end point have caused the Japanese stock market to fall into a liquidity crisis, and the Bank of Japan needs to quickly make a statement to appease the market and inject liquidity.

Second, the US macro data does not support the US entering a recession quickly. The short-term negative feedback may continue, and the subsequent improvement needs to wait for market expectations to stabilize. The current valuation of Japanese stocks is not significantly overvalued, and the market's expectations for Japan's economic growth have not been pessimistically lowered. Based on the above analysis, we should wait and see on Japanese stocks before positive factors change.

Morgan Funds believes that Japanese stocks may still be under pressure before the yen carry trade is unwound and the yen's appreciation trend eases, but this round of decline in Japanese stocks is mainly driven by changes in liquidity rather than deterioration in fundamentals. Companies in Japanese stocks with strong earnings growth potential may be opportunities for medium- and long-term layout after this round of adjustments.

As for other Asian stock markets, Morgan Fund believes that there is no arbitrage trading problem. In the short term, the US stock market is expected to stabilize after the decline eases, but the market with a high weight of technology stocks may take longer to recover. In the medium and long term, the Fed is expected to open up room for easing by central banks in Asian countries after starting to cut interest rates. In addition, FactSet estimates that the earnings growth of MSCI Asia Pacific Index constituents this year is expected to exceed 15%, which is attractive at the adjusted valuation level.

Short-term fluctuations in US stocks do not change the long-term trend

Some fund companies remain optimistic about US stocks.

Huabao Fund's International Business Department pointed out that the unemployment rate rose to the highest level in nearly three years, which once again raised concerns about slowing economic growth and triggered a broad sell-off in the stock market, further exacerbating the recent downturn.

They believe that the current market expectations for a US recession have increased, and the 10-year US Treasury yield, which was relatively stable, has also begun to accelerate downward in the past two days. However, the US economy is currently in the process of returning to normal and has not reached the level of recession. Therefore, risky assets will not be subject to systemic pressure, and may gradually shift to the logic of improving the denominator in the future, that is, they can be bought back if they fall too much.

Looking ahead, Huabao Fund International Business Department believes that the Federal Reserve's monetary policy is approaching a time window for cyclical changes. The market expects that a new round of easing will begin in September, and the valuation of US stocks will be supported. In addition, companies that have disclosed financial reports in M7 are optimistic about their investment in AI. Therefore, we continue to be optimistic about the medium- and long-term development potential of AI, and short-term stock price fluctuations have not affected the background of long-term technological revolution.

In terms of macroeconomics, considering that the current US job market is affected by supply-side factors and weather factors in July, ICBC-RBC Fund also believes that the probability of a hard landing of the US economy is still low.

Regarding the U.S. stock market style, Morgan Funds believes that the recent sharp fluctuations in large-cap growth stocks in the United States have highlighted the high valuation risks faced by giant stocks that have been ignored by the market in the past. It is expected that investors will be more cautious about large-cap growth stocks in the future and will also look for opportunities in other parts of the market.

Given their higher quality and ability to maintain profit margins in a weaker growth environment, Morgan Funds believes that valuation-adjusted U.S. large-cap stocks are still worthy of investor attention, while although small-cap stocks are relatively attractive on many indicators, the current mid-to-late cycle of the U.S. economy is unfavorable to U.S. small-cap stocks.

Editor: Joey

Audit: Wooden Fish

Copyright Notice

"China Fund News" enjoys the copyright to the original content published on this platform. Reproduction without authorization is prohibited, otherwise legal liability will be pursued.

Contact person for authorized reprint cooperation: Mr. Yu (Tel: 0755-82468670)