On the afternoon of the 24th, an unusual scene unfolded in the financial markets, particularly within the realm of monetary fundsSeveral monetary ETFs saw sudden surges, with notable players such as Penghua Tieli ETF (511820), Guoshou Currency ETF (511970), and GF Tieli Currency ETF (511950) hitting their upper limitsThe performance of these funds raised eyebrows and prompted many to question the underlying factors contributing to such a phenomenon.

But what exactly are monetary funds? These financial instruments are essentially designed for liquidity management, offering stability and accessibility for short-term investmentsMany people in daily transactions unknowingly engage with these funds through platforms like Alipay’s Yu'ebao or WeChat’s Coin Pass, both of which serve as gateways to purchasing monetary fundsTraditionally, the annualized returns on these investments have hovered around 2%, but they have recently dipped to approximately 1.5%, posing concerns for those seeking better yields.

Given the nature of monetary funds, how could they possibly hit the upper limit? The answer lies in understanding the distinction between these funds and their slightly more complex counterparts: the Monetary Exchange-Traded Funds (ETFs). ETFs, short for Exchange-Traded Funds, represent a unique class of investment vehicles that allow investors to buy shares of a fund that tracks a specific index, commodity, or a fluctuating basket of assetsThey can be divided into on-market and off-market categoriesIn the case of on-market ETFs, share prices fluctuate based on the underlying value of owned stocks or bonds, while off-market ETFs derive their prices based on supply and demand, which may not necessarily align with their net asset value.

For context, let’s consider recent trends where the S&P Consumer ETF witnessed significant price increases, with premiums exceeding 50%. This spike was attributed to the limited availability of QDII shares, prompting eager investors to pay inflated prices for entry, further fueling speculative behavior in the market.

On the day in question, the Guoshou Currency ETF had a total turnover of only 7.55 million, yet managed to hit the upper limit with a turnover of 3.827 million, indicating the influence of a small market size on its trading dynamics.

However, this surge wasn’t isolated

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By market close, the Guoshou Currency ETF had indeed reached its upper limit, while the GF Tieli Currency ETF saw gains of 9.95%, Penghua Tieli ETF gained 9.86%, and Huatai Tianjin ETF rose by 7.13%. Such movements are often indicative of a heated trading environment.

Examining turnover rates reveals a landscape of vibrant trading activity among currency ETFsAcross the market, 19 different currency ETFs experienced turnover rates exceeding 20%, with eight of these funds witnessing turnover rates more than doublingAmong them, the Guangzhou Daily Profit Currency ETF stood out with an astonishing turnover rate of 350.08%, while the Hua'an Currency ETF reportedly doubled its turnover rate to 239.63%.

Clearly, this type of trading is highly speculative, raising questions regarding the sustainability of their returnsEven as some currency ETFs appeared to surge by more than 10% on a single day, calculating the current premium suggests that it would take at least three years to recoup losses, which starkly contrasts with the expected modest returns from traditional monetary funds.

Furthermore, this trading frenzy also reflects the tight liquidity conditions typically observed at the end of the yearInstitutions are resorting to similar short-term financing strategies, driven by rising yields in recent interbank certificates of deposit.

Interestingly, events such as these are not unprecedentedSimilar volatility was observed in previous years surrounding government bonds and reverse repos ahead of holidays

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However, the current fluctuations are far more impactful, as individuals risk incurring losses that could wipe out principal investments in monetary ETFs.

In recent times, it hasn’t just been short-term financing that has seen adjustments; longer-term interest rates have also been subject to shifts, affecting the once-thriving dividend assets.

Such phenomena denote a return to normalized conditionsRecently, during the Central Economic Work Conference, policymakers indicated a shift in their monetary policy focus from stability to moderate easingThis decisive change in stance has led to rapid erosion of expectations surrounding possible interest rate cuts for the forthcoming year.

Despite these indications, market participants have observed that no significant reductions have been enacted, coupled with warnings issued by the central bank regarding the current speculative activities in the financial market, prompting caution among investorsSome are opting to realize gains and redirect their investments, as seen in my actions of selling stakes in four major banks during a rebound not due to skepticism but rather the emergence of more certain opportunities elsewhere, such as in soybean meal ETFs.

A follower recently inquired about my perspective on dividend assetsWhile my insights are merely observations, I noted that the dividend yield for the Hong Kong Stock Connect's State-Owned Enterprise Dividend Index still stands at around 8%, with the China Securities Dividend Index exceeding 5%. In this current climate, such yields are becoming increasingly rare, indicating a potential for upward movement.

Of course, the efficacy of these investments largely rests upon predictions regarding future market movements

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