The South Korean stock market has been on a tear, with the KOSPI index rising 108.85% year-to-date as of June 3. Key components like SK Hynix Inc and Samsung Electronics Co Ltd have surged 263.20% and 200.67%, respectively.
This market fervor has quickly spilled over into the only ETF product in the domestic market that allows direct investment in South Korea.
On June 3, the Huatai-PineBridge CSI Korea Exchange China-Korea Semiconductor ETF (513310, hereinafter referred to as the China-Korea Semiconductor ETF) jumped 3.26% to close at 6.136 yuan. Its Indicative Optimized Portfolio Value (IOPV) premium reached 21.96%, ranking it first among all ETFs. With a year-to-date gain of 138%, this product has become the top performer in the domestic ETF market this year.
However, this high premium has also pushed the ETF into high-risk territory. On June 3, Huatai-PineBridge Fund Management Co., Ltd. once again issued a risk warning announcement regarding the premium and implemented two temporary trading halts—one from market open until 10:30 a.m. and another from the afternoon session open until market close. So far this year, the company has issued a cumulative 164 premium risk warnings and implemented 80 temporary trading halts.
On the same day, a batch of cross-border technology ETFs also exhibited high premiums. For instance, the Invesco Nasdaq Technology ETF showed a premium of 20.71%, while several Nasdaq and Nasdaq-100 ETFs had premiums exceeding 7%. These products have recently been frequently warning investors about the risks associated with secondary market trading price premiums.
The Solo Player's Celebration
As the only ETF product in the A-share market that allows direct investment in the South Korean market, the China-Korea Semiconductor ETF was established in November 2022. Its popularity stems from the global memory chip rally driven by AI.
As of June 3, the fund has soared 138% year-to-date. Its net asset value has skyrocketed from approximately 36.71 billion yuan at the end of 2025 to 111.88 billion yuan, nearly tripling in size.
The fund's portfolio structure is relatively straightforward: the two South Korean memory giants, Samsung Electronics Co Ltd and SK Hynix Inc, together account for over 34% of holdings, combined with domestic semiconductor assets like Cambricon Technologies Corp Ltd, Hygon Information Technology Co Ltd, and NAURA Technology Group Co Ltd. With Samsung Electronics Co Ltd up over 200% and SK Hynix Inc up over 260% year-to-date, the fund's net asset value has surged accordingly.
The issue lies in the fund's high premium. On June 3, its IOPV premium stood at 21.96%. This means investors buying the ETF on the secondary market are paying nearly 22% more than the actual value of the underlying stocks the fund holds.
Huatai-PineBridge Fund explicitly warned in its announcement: "The secondary market trading price is significantly higher than the fund's reference net asset value, showing a substantial premium. We hereby remind investors to pay attention to the premium risk in secondary market trading prices. Blind investment may lead to significant losses."
On June 3, the fund also implemented two temporary trading halts: one from market open until 10:30 a.m., and another from the afternoon session open until market close.
Wind data shows that as of June 3, the fund has issued a cumulative 164 premium risk warnings and implemented 80 temporary trading halts year-to-date.
The high premium did not materialize overnight. Since the beginning of 2026, as the South Korean semiconductor sector continued its strong performance, capital kept flowing in, pushing the fund's premium rate above 30% in mid-May. The fund management company has been forced to frequently halt trading during sessions to cool the market. From early May to now, the fund has been under temporary trading halts for over a month.
Reasons Behind the High Premium
Why does the China-Korea Semiconductor ETF maintain a persistently high premium? Bi Mengmin, a researcher at GES Fund, points to three main reasons.
First, global AI infrastructure development is driving a surge in demand for high-bandwidth memory and advanced packaging. South Korean semiconductor companies hold over 70% of the global market share in memory chips, making them core beneficiaries.
Second, this ETF is the only product in the A-share market that allows direct investment in South Korea, with its top two holdings being Samsung Electronics Co Ltd and SK Hynix Inc. The explosive rally in the semiconductor sector since 2026 has attracted massive capital inflows.
Third, as a cross-border investment product, subscriptions and redemptions in the primary market for this ETF require QDII quota. The normal ETF arbitrage mechanism (subscribing for shares off-exchange and selling them on-exchange) cannot function due to quota shortages, causing the secondary market price to detach from the net asset value and rise continuously.
Bi Mengmin notes, "The premium of this product is highly correlated with QDII quota limitations. Quota is the key variable determining whether the premium can persist. QDII quotas for fund companies are allocated by the State Administration of Foreign Exchange, representing a rigid constraint. Once the quota is exhausted, the primary market subscription channel closes, effectively locking up supply in the secondary market."
This is not an isolated case. As of early June, nearly half of the approximately 330 QDII products in the entire market have 'closed their doors' to new subscriptions. The additional $5.3 billion quota granted by SAFE in March was quickly absorbed by overwhelming demand. Scarcity of quota has become a ceiling for the entire QDII ecosystem.
Bi Mengmin stated that if the fund's quota cannot be expanded rapidly, the high premium state may persist at elevated levels in the short term but is unlikely to be sustained over the long run.
Be Wary of High Premium Risks
The cross-border technology funds that have recently attracted investor fervor are not limited to the China-Korea Semiconductor ETF.
Products including the Invesco Nasdaq Technology ETF, Invesco Great Wall Global Chip LOF, and several Nasdaq and Nasdaq-100 ETFs are also trading at high premiums. They have recently issued warnings, urging investors to closely monitor the premium risks associated with secondary market trading prices of related products and make investment decisions prudently.
Huatai-PineBridge Fund's announcement also cautioned that the secondary market trading price of the China-Korea Semiconductor ETF is subject not only to the risk of changes in the fund's net asset value but also to other factors such as market supply and demand, systemic risk, and liquidity risk, which could potentially lead to investor losses.
Industry insiders point out that the fund's potential returns come from three sources: net asset value growth (from rising South Korean stocks), premium expansion (from capital inflows), and foreign exchange gains (from Korean won appreciation).
The convergence of the fund's high premium could occur primarily through three paths: expansion of QDII quotas or the fund company obtaining new quotas; a correction in the semiconductor sector or a cooling of the AI theme, reducing capital inflows; or the launch of similar products, diverting capital and alleviating the supply-demand imbalance.
"The core risk lies in the fact that the high premium itself stems from a mismatch between immediate market liquidity and allocation convenience. Once market sentiment cools or the quota issue is alleviated, the premium could converge rapidly, leading to double losses," said Bi Mengmin.
Huatai-PineBridge Fund pointed out that chasing high-premium cross-border ETFs by buying in at elevated prices could lead to losses from a subsequent decline in secondary market prices. In extreme cases, investors might even face difficulties selling their holdings.
Bi Mengmin recommends that investors prioritize products with a premium rate below 5%. If the premium rate far exceeds a reasonable range, ordinary investors should participate with caution. For those bullish on the South Korean semiconductor sector, they might consider waiting for QDII quota expansion and then subscribing through off-exchange feeder funds to avoid secondary market premiums. Alternatively, they could choose low-premium ETFs tracking global semiconductor indices for indirect exposure to South Korean semiconductor leaders.
Comments