This year, benefiting from the sustained rise in global semiconductor industry prosperity, QDII (Qualified Domestic Institutional Investor) funds investing in the South Korean market have delivered standout performances.
Wind data shows that as of May 11, the China-South Korea Semiconductor ETF managed by Huatai-PineBridge has achieved a net asset value increase of 73.63% year-to-date (ranking first in QDII market performance), with its latest net asset value reaching RMB 5.634. Its size has rapidly expanded from RMB 3.671 billion at the beginning of the year to RMB 9.680 billion, with a net inflow of RMB 2.793 billion year-to-date. However, alongside this impressive performance, the fund's secondary market premium has surged to 20.41%, far exceeding the 1.17% average for all QDII funds in the market. This coexistence of performance and risk reflects the high enthusiasm and potential underlying concerns in the current cross-border semiconductor investment space.
The strong performance of China-South Korea semiconductor-themed funds in this round is primarily driven by the cyclical recovery in the memory industry and demand from AI (Artificial Intelligence) infrastructure construction. Liu Tengfei, Deputy General Manager of the Equity Investment Department and Fund Manager at Xinwo Fund, analyzed that AI training servers, due to their heavy configuration of high-bandwidth memory requirements, have seen their memory subsystem's value contribution increase severalfold compared to traditional servers. Currently, the production capacity of leading South Korean semiconductor companies SK Hynix and Samsung Electronics has been locked in by long-term AI orders. Demand for memory-related components has shifted from general-purpose parts to core strategic materials for AI infrastructure, leading to a dual improvement in performance and valuation for these two companies. Fund managers Liu Jun and Li Muyang of the China-South Korea Semiconductor ETF at Huatai-PineBridge also stated in their first-quarter report that the semiconductor industries of both China and South Korea are deeply benefiting from the industry's prosperous cycle.
Driven by both performance and capital inflows, the secondary market price of the China-South Korea Semiconductor ETF managed by Huatai-PineBridge has continued to deviate from its net asset value, indicating significant premium risk. Statistics show that this year, Huatai-PineBridge Fund has issued 138 premium risk warnings for this product and applied for 37 temporary trading halts, repeatedly cautioning the market about the risks of chasing high prices.
To address potential extreme situations in the South Korean market, such as price limits or trading halts, Huatai-PineBridge Fund updated the fund's prospectus at the end of March, making important revisions to the "cash substitution" procedures for subscriptions and redemptions. In summary, the core changes include: when component stocks face insufficient liquidity, the fund manager has the "right" to settle based on a reasonable valuation, and the settlement date can be postponed accordingly, no longer rigidly requiring completion at the day's market price or on a fixed date. In simpler terms, if extreme market conditions like trading halts or consecutive price limits occur, the fund manager is not forced to buy or sell stocks at "dysfunctional" prices. Instead, a fairer valuation can be used for settlement with investors, and the timing can be more flexible.
Zeng Fangfang, Public Fund Product Operations at Shenzhen Qianhai Paipaiwang Fund Sales Co., Ltd., stated that this move aims to prevent harm to some holders' interests due to rigid rules, fully reflecting the fund manager's sense of responsibility in protecting all fund shareholders.
For ordinary investors, Zeng Fangfang advises paying attention to several risks when investing in cross-border semiconductor ETFs: First, high premiums may converge as market sentiment cools, potentially leading to losses even if the underlying index does not fall. Second, liquidity in some overseas stock markets is relatively fragile, making them prone to concentrated selling under negative news. Third, some index components are relatively concentrated, meaning a single event could significantly impact the ETF.
Cui Yue, an analyst at Morningstar (China) Fund Research Center, further advises that investors should not blindly enter the market based solely on its popularity but should base decisions on their own understanding and risk tolerance. It is crucial to pay close attention to the high premium risk of cross-border QDII-ETFs (referring to Exchange-Traded Funds that raise RMB funds domestically and invest in overseas capital markets). Once buying sentiment runs high in the secondary market, it can easily create a significant premium deviating from the net asset value. Chasing highs may lead to losses during the subsequent premium correction process. Additionally, some ETFs have small scale and insufficient liquidity, coupled with mismatched cross-border trading hours, which can also affect trade execution. Furthermore, QDII-ETF fees are generally higher than domestic products, which can erode actual returns over the long term.
Looking ahead, Yang Weiwei, Fund Manager of the Great Wall Semiconductor Industry Fund, stated that the current semiconductor rally is mainly due to AI reshaping the industry chain. The overseas semiconductor supply chain benefits earlier and more directly from AI investment. Referring to the historical performance of the Philadelphia Semiconductor Index, the rise in A-share semiconductors is likely not driven by short-term sentiment catalysts. The sustainability of the market trend is viewed positively, but the upside potential needs to be assessed in conjunction with market liquidity and the pace of industry advancement.
Yang Weiwei suggests that ordinary investors focus on the long term, making prudent allocations based on the high growth potential, vast space, and long cycle of China's semiconductor industry to better capture the investment dividends brought by industrial transformation.
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