Chinese Investors Go Big on U.S. Stocks – NASDAQ ETFs Surge 20%

Amid the U.S. stock market consistently hitting record highs, Chinese investors are showing a heated interest in the U.S. stock market and NASDAQ ETFs (Exchange Traded Funds) listed on the Chinese stock market, with investment premiums reaching up to the maximum of 20%.

On the 5th, Chinese economic media Xinlang Caijing reported, “The recent enthusiasm for overseas ETFs is a positive change from globalization and diversification of asset investment. However, the investment risk increases as the premium once reached 20%.” A premium refers to the excess of the ETF price over the net asset value (NAV), which often appears in China, where overseas investment is restricted, but demand for overseas assets surges.

Last week, the U.S. stock market continued its strong rally, primarily driven by tech stocks, as Meta and Amazon exceeded expectations with their performance. On the 2nd, the S&P 500 index and the Dow Jones Industrial Average hit all-time highs. In particular, the Dow Jones has hit record highs nine times this year.

In contrast, the Chinese stock market was significantly shaken during this period due to the shock of real estate company Evergrande receiving a liquidation order. The Shanghai Composite Index and the Shenzhen Component Index, the three major indices in China, suffered their most significant drops in five and three years, respectively (every week). The strong performance of the U.S. stock market and the weakness of the Chinese stock market have sparked Chinese domestic investors’ interest in investing in U.S. ETFs.

As the Chinese stock market continues to underperform this year, there was also a buying trend in the Nikkei ETF listed on the Chinese stock market early last month, with premiums reaching up to 20% maximum.

Experts in China are concerned about massive investor losses due to excessive premiums. Precedently, on the 29th of last month, the U.S. stock market ETF was designated as an investment risk item in the Chinese stock market, resulting in trading being suspended for an hour after opening.

Sina Finance quoted the industry expert saying, “Due to the investment limit of Qualified Domestic Institutional Investor (QDII, a channel for Chinese funds to invest overseas) and a significant absence of selling volume, buyers have no choice but to pay high premiums.” It warned that “blind investment could lead to significant losses.”