Attention! Multiple crude oil LOF funds are collectively suspending trading! What signals does this send?

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Source: Futures Daily

Recently, driven by the severe volatility in international oil prices, the secondary-market trading prices of multiple crude-oil-themed LOF funds have been significantly higher than the funds’ net asset values, resulting in a large premium. To prevent trading risks and protect investors’ interests, the relevant funds have issued announcements one after another and implemented trading halts.

The announcements released on the 26th by Harvest Fund, E Fund, and Southern Fund show that products such as Harvest Crude Oil Securities Investment Fund (QDII-LOF) (abbreviated as Harvest Crude Oil LOF), E Fund Crude Oil Securities Investment Fund (QDII) (abbreviated as E Fund Crude Oil LOF), and Southern Crude Oil Securities Investment Fund A (abbreviated as Southern Crude Oil LOF) have secondary-market trading prices that clearly deviate from the fund net values, with the premium level remaining persistently high. If investors buy fund units at a high premium, once the premium converges, they may suffer substantial investment losses. To protect the interests of unit holders, fund companies have successively released trading halt announcements and risk warning notices; the relevant crude-oil LOFs have implemented intraday temporary trading halts in succession.

In the afternoon of March 26, the Shenzhen Stock Exchange released an announcement stating that Harvest Crude Oil LOF and E Fund Crude Oil LOF would implement temporary trading halts from the opening that afternoon until the close of trading the same day, because the premium percentage in the secondary market had not fallen back. In addition, Southern Fund also issued an announcement: as of the midday close of March 26 on the Shanghai Stock Exchange, the secondary-market trading price of Southern Crude Oil LOF was clearly higher than the net value of the fund units, with a sizable premium. It then went into a halt from the opening that afternoon until the close of trading that day.

据悉，the above-mentioned crude-oil LOFs are all crude-oil commodity-category QDII products, investing in overseas assets. Their net value performance closely tracks the rise and fall of international crude-oil futures prices.

Crude-oil LOFs have frequently issued premium risk warnings and trading halt announcements. In the view of market analysts, this clearly signals short-term market overheating and sentiment peaking. Chen Dong, Senior Researcher for energy and chemicals at Baocheng Futures, said that the premiums of the crude-oil LOFs from Harvest Fund, E Fund, and Southern Fund are all above 30%, reflecting a surge in bullish sentiment among in-market capital, rather than an improvement in underlying asset fundamentals. Because QDII’s foreign-exchange quota has been used up and subscriptions have been closed, the arbitrage mechanism has failed; capital can only rush to accumulate positions in the market, causing the price to seriously deviate from the actual value of the underlying assets.

“This kind of sentiment premium is panic-driven chasing-up caused by geopolitical conflicts in the Middle East. Both the turnover rate and premium rate of the related crude-oil LOFs are at historical extreme levels. The trading halt is a ‘cooling down’ measure by regulators and fund companies for the market; it indicates that short-term market sentiment has reached its peak and the risk of bubble formation is extremely high.” Chen Dong said. Based on historical data, once this type of LOF premium peaks, it is often accompanied by a sharp pullback in the valuation of the underlying assets and a rapid convergence of the premium, which serves as a short-term negative signal for crude-oil futures prices.

Yesterday, geopolitical risk rose again, and international oil prices rose again significantly.

Looking at the underlying fundamentals of the crude-oil market, Du Bingqin, Director of Energy and Chemicals Research at Everbright Futures, said that currently, the combined production cut by Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait totals 8.8 million barrels per day. The refining capacity affected in the Middle East is about 6.5 million barrels per day. Notably, Iran has released some vessels and has begun charging transit fees to certain merchant ships; some Asian oil tankers have already obtained passage. On the inventory front, this week U.S. commercial crude oil inventories and distillate oil inventories increased sharply, while gasoline inventories decreased. Although crude oil processing volumes increased by nearly 2.6 million barrels, net import volumes also rose, and crude oil inventories have increased for five consecutive weeks. With the geopolitical situation remaining unclear, it is expected that prices of crude-oil-related products will continue to maintain high volatility.

Chen Dong also said that the current market shows a “convergence of sentiment cooling off + fundamentals being relatively weak.” In the short term, it is advisable to strictly control position sizes, avoid LOFs with high premiums, set stop-loss lines strictly, and wait for sentiment and prices to stabilize.

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责任编辑：赵思远