U.S. stocks got off to a bad start in 2024, ending a nine-week streak of positive gains. However, after a brief period of consolidation, they hit record highs again, which also fueled Chinese investors' enthusiasm for on-market U.S. stock-linked ETFs. On January 23, the US stock 50 ETF (513850) issued by E Fund rose sharply by 10.01%, directly hitting the daily limit, with a premium rate of 21.02%. However, a high premium sometimes means doubling the income, and sometimes it may also mean the risk of accelerating the decline of "catching a flying knife".
Be wary of the risk of continued high premiums for U.S. stock ETFs
On January 23, the U.S. stock 50 ETF issued by E Fund opened higher and soared 10.01%. What is more noteworthy is that its premium rate has reached as high as 20%. This means that investors need to pay an additional 20% premium to buy the ETF. The premium means that the returns are magnified for the holders, but it also means that new entrants are more likely to suffer losses.
The ETF has been trading at a premium for several days. An investor told reporters on the 22nd: "I bought some US stock ETFs two weeks ago. When I looked at it in the morning today (22nd), it rose by 8% to 9%, but by the time it closed in the afternoon, it had risen by 15%, as if it had been leveraged." On the 23rd, , as cross-border ETFs continue to be sought after by funds, the US stock 50 ETF quickly rose to the daily limit in the afternoon, with a premium rate of over 10%. In addition, the Nikkei ETF (159866) rose by more than 4%, and the Nasdaq ETF (513300) rose by 3.54%.
Industry insiders told reporters that this is mostly because the QDII quota is limited and there are few sales, so buyers have no choice but to pay a higher premium. At this time, large fluctuations are often prone to occur. Wind data shows that the size of the above-mentioned US stock ETF is only 50.89 million yuan.
This scenario has already occurred last week, but the subject with a large premium last week was the Nikkei ETF. The Japanese stock market has been booming in the past year, with an increase of nearly 36%. It has risen by about 7% since the beginning of the year. Therefore, Chinese investors have also rushed to enter the market. The most convenient investment target is ETF. "The size of ChinaAMC and E Fund's Nikkei ETFs are both about 100 million yuan. The buying orders were particularly concentrated in the previous week, but the QDII quota was not enough and there were no selling orders. Therefore, higher prices need to be continuously raised to complete transactions." A person from a public offering agency told reporters.
Yuan Yuwei, a global senior macro fund manager, told reporters: "On January 16, the China Nomura Nikkei 225 ETF's trading volume was 5 billion yuan (less than 100 million yuan a month ago) and it was able to increase (premium) by more than 10%. This is already very exaggerated. Some T+0 strategies can completely short this target." He also said, "Now the Japanese stock market benefits from global supply. As the supply chain is restructured, high-end manufacturing themes are popular, and with the help of the depreciation of the yen, otherwise it will be difficult to get out of the surge in a high-inflation environment. "In addition to the intraday premium of Huaxia Securities ETF, which exceeded 20%, the premium of ICBC Daiwa Nikkei 225 ETF (159866) and E Fund Nikko Asset Management Nikkei 225 ETF (513000) also exceeded 6% on the 16th.
At that time, many fund companies issued warnings about the risks. For example, China Asset Management's announcement on the 16th showed that the secondary market transaction price of its Nikkei ETF was significantly higher than the reference net value of fund shares, showing a large premium. Investors are hereby reminded to pay attention to the risk of price premium in secondary market transactions. Investors may suffer heavy losses if they invest blindly.
Earnings reports from U.S. tech giants dominate market trends
As far as U.S. stocks are concerned, this week is also a particularly critical week. The financial reports of the technology giants that will support the index in 2023 will begin to be released one after another. 2024 got off to a rocky start for large-cap tech stocks, which are heavily weighted in the Nasdaq 100, but they quickly got back on track after the first week.
Starting this week, star technology stocks will announce their results one after another, with Netflix (Tuesday), Tesla (Wednesday) and Intel (Thursday) attracting the most attention. The gains and losses of the three companies on the day of the last financial report were 16%, -9% and 9% respectively.
“A big factor driving the Nasdaq 100 higher recently has been strong U.S. economic data. Labor market (nonfarm payrolls in the first week of the year), prices (CPI in the second week of the year) and consumption data (retail sales earlier last week) were all stronger than expected, and it’s clear that the U.S. economy is outperforming. "Previous expectations." Matt Weller, global head of research at Gain Capital Group, told reporters that a few years ago, the growth technology stocks in the Nasdaq 100 Index struggled in the context of long-term interest rate hikes. They have since become more mature and are now pure beneficiaries of a strong economy and high interest rates.
He said that now the combined price-to-earnings ratio of the "Big Seven" stocks (Microsoft, Apple, Google/Alphabet, Amazon, Nvidia, Facebook/Meta and Tesla) has reached an eye-popping 50 times, and the only thing that may drag down the Nasdaq 100 index is poor financial performance. Each of the "Big Seven" faces opportunities and challenges, but some common themes to watch are the health of consumers and the overall economy, as well as the impact of artificial intelligence and the growth of augmented/virtual reality devices.
According to Zacks analysts, earnings for the "Big Seven" collectively are expected to rise nearly 40% from the year-ago period on the back of high revenue of 12%. According to data from LPLFinancial, these seven stocks will account for more than 100% of the total earnings growth of the entire S&P 500 Index, which means that the "S&P 493" (the remaining 493 components of the S&P 500 Index) may have lost money for the entire last year.
Earnings aren't the only fundamental metric by which the Big Seven outperform other stocks. Judging from factors such as sales growth (expected to be close to 11% in the next two years, compared with 3% for "S&P 493") and net profit margin (expected to be about 20%, compared with about 10% for "S&P 493"), they are completely different. Whether you trade indices or not, you should keep a close eye on the financial performance of the "Big Seven" for the foreseeable future.
In addition, changes in expectations for the Federal Reserve to cut interest rates will also affect the market. The Michigan consumer confidence index in the United States jumped sharply to 78.8 in January, far exceeding expectations and hitting the highest level since July 2021. The market's optimistic expectations for a soft landing for the economy have further reduced the probability of an interest rate cut in March to less than 50%, and bets on interest rate cuts for the entire year have dropped from the highest of 160 BP to around 120 BP.
Analysts told reporters that U.S. PCE inflation data for December will be released this Friday. The year-on-year growth rate is expected to remain unchanged at 2.6%, while the core PCE growth rate will drop from 3.2% to 3%. How quickly inflation recedes will determine the Fed's schedule for rate cuts this year. Other U.S. economic data this week include PMI released on Tuesday, and GDP, durable goods orders and initial jobless claims for the fourth quarter of 2023 released on Thursday. Among them, the GDP growth rate is expected to slow down from 4.9% to 2%.
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