On February 11th, a sudden surge in the prices of multiple currency ETFs captured the attention of market participants once againMidday trading saw announcements from various funds including the Jin Ying Zeng Yi Money ETF, Guangfa Money ETF, Guolian Riyi Money ETF, Huatai Money ETF, and others, indicating a temporary suspension of trading.

The earliest signs of these price fluctuations can be traced back to just before the Lunar New Year celebrationsNotably, the ETFs experiencing these price surges often had relatively low circulation volumes, ranging from tens of thousands to a few hundred thousand unitsIn interviews, several public fund representatives suggested that the recent activity in currency ETFs may be largely fueled by speculative tradingSome investors appear to be viewing them as tools for short-term arbitrage, and a lack of understanding regarding the pricing mechanisms of on-exchange currency ETFs may have led to herd behavior in buying.

In their suspension announcements, fund companies have made it clear that investors should be aware of the premium risks in secondary market trading prices, warning that reckless investing could result in significant losses.

Price Fluctuations

According to the suspension announcements, the trading prices of these currency ETFs in the secondary market were observed to be substantially above the reference net asset value of the funds, leading to significant premiums

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Fund companies have employed measures like suspensions to alert the market of possible risks.

Taking the announcement from Guangfa Money ETF as an example, it was stated that as of February 11, 2025, at the midday close on the Shanghai Stock Exchange, the trading price of the Guangfa Money ETF showed a noteworthy premium, markedly deviating from the fund unit's reference net asset valueInvestors were cautioned to closely monitor the fund's net asset value and secondary market trading price, as blind investments may lead to substantial lossesConsequently, to safeguard investor interests, trading was suspended from 13:00 until market close on the same day.

By February 11th's mid-session close, it was apparent that the prices of these currency ETFs had seen notable increasesThe Jin Ying Zeng Yi Money ETF rose by over 8%, while Guangfa Money ETF and others reported increases exceeding 7% and 6%, respectively.

In fact, the currency ETFs had been experiencing such swings since before the Lunar New Year holiday.

On January 24th, several standout funds like Penghua Tianli ETF, Guolian Money ETF, Guangfa Tianli Money ETF, along with others, exhibited sudden price increases, even resulting in the rare phenomenon of hitting daily price limits for currency ETFsUnder normal circumstances, a single-day price rise of 5% for currency ETFs is exceptional; however, several funds reached their daily limitsThis was swiftly followed on January 27th by further surges in multiple currency ETFs, with many showing rises exceeding 6%, prompting nine funds to announce their suspensions.

After the Lunar New Year, the peculiar fluctuations continued, with instances of both significant rises and falls.

On February 5th, the first trading day after the holiday, nine currency ETFs including Huatai Tianjin Gold ETF, Guolian Money ETF, and others announced full-day trading suspensions due to trading risks; the following day saw a sharp decline in many funds

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For instance, the Guolian Money ETF hit its down limit, while other ETFs like Rongtong Money ETF and Jiasheng Fast Cash ETF each tumbled over 8%, with Guangfa Money ETF and Guolian Riyi Money ETF dropping more than 7%. After a cooling-off period of two trading days, February 10th saw currency ETFs rebound dramatically, with Jin Ying Zeng Yi Money ETF hitting its limit.

Who is driving the speculation?

Regarding the recent flurry of currency ETF activity, a representative from a leading public fund in Southern China remarked, “Currently, the annualized yield of currency funds tends to be generally low, often below 2%. However, the atypical phenomenon of certain on-exchange currency ETFs jumping over 10% in a single day defies the logical returns we expect from currency fundsIt is reasonable to suspect that these extraordinary hikes may be attributed to speculative actions.”

A source from a public fund in Beijing added, “The currency ETFs that are witnessing this unusual activity are relatively small in scale, suggesting that funds are speculating by inflating prices to draw in more capital.”

There has also been speculation in the market that such fund actions might be triggered by certain strategies implemented by quantitative hedge funds, which could be automatically buying into currency ETFsGiven the smaller scale of these products, this could contribute to significant premiums.

In response, a quantitative hedge fund participant from Shanghai commented, “Most mainstream quantitative hedge fund products are predominantly long-only in stocksAlthough there can be individual strategies that diversify into currency funds, it is by no means the norm.”

The aforementioned representative from Southern China further noted, “From the backend data of fund companies, the investors engaging in speculative activities before the Lunar New Year were primarily individual investors, with some participation by hedge funds, but at a lower proportion

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