Multiple Hong Kong stock ETFs have a "false trading halt"! With over 10% premium, why does the ETF continue trading during the holiday closure of Hong Kong stocks?

Due to the Christmas holiday, the Hong Kong stock market has been closed for two and a half days, but Hong Kong-related ETFs have mysteriously hit their daily limit of increase. What happened? On December 26th, the Hong Kong stock market dividend low volatility ETF and the dividend Hong Kong stock ETF hit their daily limit of increase, with a premium rate of up to 14.11% and 15.31%. The Hong Kong stock central enterprise dividend ETF, which rose by 5.6%, had a premium of 15.28%. Hong Kong stocks have not traded for two and a half days, but Hong Kong-themed ETFs continue to trade during market hours, leading to discussions among investors about premium, arbitrage, and risk over the two days. Even on the 26th, some investors were wondering whether they should follow the trend and buy in at such high premium rates. With premiums exceeding 15%, why aren't ETFs synchronized with Hong Kong stock trading hours? In the past two days, after cross-border ETFs, Hong Kong stock ETFs have also appeared on the high premium list. The reasons for the premiums on both types of ETFs are simple: cross-border ETFs still face the perennial issue of QDII quotas, while Hong Kong stock ETFs are affected by the closure of the Hong Kong stock market, leading to discrepancies in pricing and limited supply adjustments due to the inability to redeem and issue in real time. Additionally, most ETFs are not large in size, further fueling speculation. Specifically, the S&P consumer ETF had the highest premium at 26.21%, with the dividend Hong Kong stock ETF, the Hong Kong stock central enterprise dividend ETF, and the Hong Kong stock dividend low volatility ETF all having premium rates exceeding 10%. In terms of turnover, the S&P consumer ETF had the highest turnover at 646.67%, followed by the Hong Kong stock central enterprise dividend ETF with a turnover of over 610%. The turnover of the Hong Kong stock dividend low volatility ETF was over 5 times, the Hong Kong stock dividend low volatility ETF and the dividend Hong Kong stock ETF turnover were over 4 times, and the turnover of the China-Korea semiconductor ETF was also over 1 times. The smaller the size, the better the speculation. Many Hong Kong stock-themed ETF funds have a value of only a few million, meaning that around 200 million in capital can bring about turnover exceeding 4 times. Some industry insiders have pointed out that the essence of ETF premiums and discounts lies in the unique trading mechanisms of ETFs, which can be traded on two markets with two different prices, leading to discrepancies in pricing between the primary and secondary markets. In recent years, cross-border ETF investments have been hot, causing increased demand in the secondary market. However, the limitations on QDII quotas and foreign exchange quotas have weakened trading efficiency, leading to wider fluctuation ranges for ETF premiums and discounts. Unlike the relatively smooth arbitrage mechanisms in A-shares, quota limitations reduce the number of arbitrageurs and limit the efficiency of premium arbitrage, potentially leading to significant ETF premiums persisting for a longer period. For this particular instance of Hong Kong stock ETF premiums, the primary reason is the difference in trading hours. Overseas markets usually have trading hours that overlap with A-share markets, making it difficult to update the IOPV data in real-time. When overseas markets are closed, cross-border ETFs have to suspend primary trading and can only engage in secondary market trading, exacerbating the high premium situation. Investors may wonder why Hong Kong stock ETF trading hours are not synchronized with the Hong Kong stock exchange trading hours to avoid high premiums. Some mutual fund professionals have stated that Hong Kong stock ETFs issued on the mainland have always suspended redemption and issuance but continue to trade. This is because the suspension of redemption and issuance does not involve an increase in shares for investors or the need for ETF securities exchange, just in-house speculation. Other mutual fund professionals have mentioned that Hong Kong stock ETFs mainly listed on A-shares follow the trading hours of A-shares, a challenge faced by cross-border products. In just three days, there have been over 70 warnings about ETF premium risks So, back to the question of investors, can these high premium ETFs be bought? Some fund managers have stated that an increase in buying orders for in-house ETFs pushes up prices, causing fluctuations in prices around their values that eventually return to reasonable levels. The premiums and discounts of ETFs will eventually be smoothed out at different times. This process involves a set of arbitrage mechanisms where investors can buy a basket of stocks on the secondary market at a premium, purchase ETF shares through primary market subscription, and then sell ETF shares on the secondary market to make a profit through "buying low and selling high". "Once the ETF allows redemption and issuance, investors can buy and sell ETFs for arbitrage," as mentioned by the source. The high premium states often indicate an overheated market, so once emotions subside or funds allow for subscriptions, arbitrage participants may flood in, causing fund prices to quickly return to their net asset value, potentially reducing or eliminating the premium. In the eyes of institutions, investors who buy in at higher levels may face capital losses in the short term as the premium falls, essentially paying the price for high market sentiment. Therefore, in the face of high premiums, ordinary investors need to remain calm and consider the underlying risks of a pullback. Fund companies will issue risk warnings when ETF premiums are high. Since the 24th, there have been more than 70 announcements about the risks of premiums for cross-border ETFs and Hong Kong stock ETFs. Additionally, several fund companies have been urging investors through educational articles to consider various factors such as size, liquidity, tracking error, fees, and premiums/discounts when selecting ETF products. While enjoying the convenience of ETF investments, investors should remain cautious and rational, scientifically plan asset allocation, and strictly implement risk control measures. This article was reprinted from "Cai Lianshe", GMTEight edited by Liu Jiayin.