Since the onset of 2023, the excitement surrounding cross-border Exchange-Traded Funds (ETFs) has reached new heightsHowever, after an explosive opening on January 10, the market experienced a notable downturn, prompting questions about whether the fervor for these financial products might be cooling.

By January 10, numerous cross-border ETFs, such as the S&P Consumer ETF, Southern Saudi ETF, and German ETF, had experienced impressive fluctuations, with five-day gains surpassing 15%. On the previous trading day, many cross-border ETFs saw substantial increases, even hitting their upper limit, with the S&P Consumer ETF showing a staggering premium rate of up to 51%, and two Saudi ETFs exceeding a premium of 20%. This situation hinted at an overheated market that raised alarms among investors and market observers.

However, the initial exuberance started to wane after several cross-border ETFs were suspended

Although many others surged dramatically after the opening, most of the ETFs that remained unpaused ended the day on a negative note, indicating a swift retreat in investor sentiment.

Noteworthy is the T+0 trading system applicable to cross-border ETFs, which allows for same-day transactionsThis rapid trading environment led to an unprecedented turnover rate; by January 9, the Southern Saudi ETF noted a staggering 1429.18% turnover, while the Huatai-Pinebridge Saudi ETF also exceeded 717%. Such figures underscore the speculative frenzy gripping the market.

In light of these soaring premiums, several cross-border ETFs were suspended from trading starting January 10. The dramatic increase in the market intensity of cross-border products led multiple fund companies to issue repeated warnings regarding the risks associated with price premiums.

According to a representative from Invesco Great Wall Fund Management, investors are advised to consider several factors when selecting ETFs, including the product's size, liquidity, tracking error, fees, and premium/discount ratios

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This insight becomes particularly crucial when navigating periods of high premiums, as the potential for price corrections could lead to significant short-term lossesThe representative stressed that excessive premiums are not sustainable and warned investors against following the herd blindly.

Despite the initial surge on January 10, the day ended with a stark shift as many cross-border ETFs succumbed to profit-taking and closed lowerOnly two S&P Oil & Gas ETFs managed to finish higher, a marked contrast to the upward trajectory observed earlier in the week.

High premium rates forced four of the year’s top-performing cross-border ETFs to suspend trading, reflecting a growing trend among products like the S&P Consumer ETF, Southern Saudi ETF, S&P 500 ETF, and German ETF, which held some of the highest premium ratesWith a staggering premium of 51.82%, the S&P Consumer ETF demonstrated a significant divergence from its net asset value

The other three ETFs also reported premiums of 21.44%, 18.29%, and 14.54%, respectively, all markedly higher than their peers.

The S&P Consumer ETF’s announcements from earlier in the month highlight this mounting issue, as since January 2, it has repeatedly warned investors about the risks of trading at substantial premiumsThis consistent communication from the fund signals a proactive approach to safeguarding investor interests.

In light of the persistent irregularities in trading volume and price, the Invesco Great Wall Fund opted to suspend trading on the S&P Consumer ETF to better protect its investors, signaling to the market the urgent need for caution amidst soaring investor enthusiasm.

Industry insiders have noted that the T+0 structure of cross-border ETFs amplifies the circumstances leading to inflated premium rates; such high premiums imply a substantial deviation from actual value, increasing the probability of a downward correction that could leave uninformed investors with significant losses

Moreover, should a price correction coincide with overall depreciation of the underlying assets, the damage to investor portfolios could be particularly severeFund companies have been increasingly cautious, issuing warnings and implementing trading suspensions to mitigate these risks.

As the market began cooling off post-peak excitement, it appears significant volatility continues to characterize investor sentimentThe S&P Consumer ETF saw a remarkable five-day rally of 29.18%, while its 60-day increase reached 65.27%. However, such skyrocketing performances are often unsustainable, and by the afternoon trading session on January 10, several unfashionably high-profile cross-border ETFs such as the Asia-Pacific Select ETF, S&P ETF, and Huatai-Pinebridge Saudi ETF experienced notable declines of 5.02%, 3.56%, and 3.50%, respectively.

Interestingly, the Asia-Pacific Select ETF had touched a 7% rise earlier during the day, with a daily trading range of over 12%. Similarly, the Huatai-Pinebridge Saudi ETF exhibited a chaotic performance, hitting its daily limit on January 9 before facing a steep drop the following day

Such dramatic fluctuations are an indicator of a volatile market landscape that raises concerns among investors.

Market traders have pointed out that currently, most cross-border ETFs have inflated premium ratios and that limitations on subscription and redemption across multiple fund companies are intensifying the situationThis restriction from ETFs due to quota limits, alongside their trading practices, has led to prolonged periods of overvaluation.

As market enthusiasm surged, traders observed exceptionally high turnover rates for cross-border ETFsThe Asia-Pacific Select ETF, S&P ETF, and Huatai-Pinebridge Saudi ETF posted turnover rates of 979.61%, 537.40%, and 972.71%, respectively, on January 10. Following this intense trading environment, premium rates across these ETFs saw a degree of cooling compared to the previous trading day.

Conversations within investment communities reflect growing unease among personal investors, with some expressing skepticism about upcoming market movements