Title: Major Securities Firms Miss Market Surge; Mutual Funds Adjust Valuations
In the past two days, over 20 companies including Yifangda Fund, Guangfa Fund, and Harvest Fund have密集ly released announcements adjusting the valuations of Guotai Junan (601211.SH) or Haitong Securities (600837.SH) held by their funds. This move is primarily due to the recent significant rise in the non-bank financial sector, with the prices of the aforementioned two suspended stocks no longer reflecting the latest situation.
From the market perspective, after reaching a low of 2689.7 points on September 18th, the A-share market has been strongly rising and breaking through several integer thresholds. As of the close on September 26th, the Shanghai Composite Index has reclaimed the 3000-point mark, settling at 3000.95 points. The securities sector, known as the "bull market flag bearer," has also shown a noticeable increase, with the securities index (884780.WI) rising by 16.04% over the last 8 trading days.
"If fund managers do not adjust the valuation and still calculate the net value based on the stock price before the suspension, it would create a certain degree of arbitrage situation," said an industry insider interviewed by a fund. The valuation adjustment is made to avoid arbitrage, treat investors fairly, and ensure that the net value of the fund products can timely and accurately reflect the asset conditions. This move is mostly applicable to the funds' heavily weighted stocks.
Public funds have been intensively adjusting the valuations of individual stocks. During this round of market bottoming and rebounding, the securities sector has fully exploded, with all 46 securities stocks rising by more than 10% in the last 7 days, and stocks like Oriental Fortune, Guohai Securities, and Jinlong Shares have risen by more than 30% during the period. Guotai Junan Securities and Haitong Securities, which are suspended due to significant asset restructuring, obviously missed this "carnival." Recently, many public funds have adjusted the valuation of Guotai Junan or Haitong Securities held by their funds.
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On September 26th, China Banking Fund announced that, according to the "Guiding Opinions on Securities Investment Fund Valuation Business" (No. [2017]13) issued by the China Securities Regulatory Commission on September 5, 2017 (hereinafter referred to as the "Guiding Opinions") and the company's valuation policy and procedures for long-suspended stocks, starting from September 25th, the valuation adjustment for Guotai Junan and Haitong Securities held by the funds (excluding ETFs) under the company will be carried out according to the index return method.
On the same day, more than ten companies including Guorong Fund, Tianhong Fund, and Dongwu Fund also issued similar announcements. According to an incomplete statistics by the First Financial Daily, as of the close on the 26th, the number of fund companies that have announced valuation adjustments for these two suspended stocks in the last two days has expanded to 23, among which 9 have only adjusted the valuation for Guotai Junan.
In addition, some companies have also considered the related target ETFs held by ETF linked funds. For example, Guangfa Fund stated that after considering the impact of the valuation adjustment of the aforementioned stocks on the net value of the target ETF shares, the valuation will be carried out according to the adjusted net value of the shares on the same day.
The aforementioned announcements also show that after the resumption of trading of Guotai Junan or Haitong Securities' stocks and the trading reflects the characteristics of active market trading, the valuation will be resumed using the closing price of the day; the valuation of the related target ETFs held by ETF linked funds will be resumed using the net value of the shares on the same day.
The index return method mentioned in many of the above announcements is the most commonly used method in the industry for valuing suspended stocks, that is, using the published corresponding industry index return rate as the return rate of the suspended stock. In the view of industry insiders, using the index return method is a provision of the fund valuation standards and guiding opinions. In addition, there are methods such as the comparable company method and the market price model method.According to the "Guidance Opinions" and other relevant regulations, for suspended stocks, each fund management company should fully assess the impact of changes in the economic environment and specific matters of listed companies on stock prices after the suspension. If the potential valuation adjustment affects the net value of the fund's assets by more than 0.25% from the previous valuation date, a valuation adjustment should be made in accordance with the provisions of the "Guidance Opinions."
"For example, if a stock is suspended for some reason, but during the suspension period, the entire sector's index has risen or fallen significantly. If the impact exceeds a certain level, the suspension price will be adjusted using the sector's rise or fall percentage," said a person from a large fund company in an interview. Apart from "black swan" events that cause individual stocks to be completely out of sync with the sector, the index return method is generally used.
This method takes more into account systematic risks and is relatively objective and transparent, facilitating investor supervision and better avoiding company manipulation of valuations.
What is the reason for this collective adjustment?
The First Financial Daily reporter learned from several companies in the industry that in this incident, the valuation adjustment for Guotai Junan and Haitong Securities was mainly due to the recent significant rise in the non-bank financial sector. If fund managers did not adjust the valuation and still calculated the net value based on the stock price before the suspension, it would create a certain degree of arbitrage situation.
Under normal circumstances, when a stock is suspended, it means that its stock price may fluctuate significantly after it resumes trading. Fund companies, following a certain logic and experience, give this stock an expected fluctuation valuation and use this as a basis to calculate the product's net value, which can more effectively and comprehensively reflect the impact of the held stocks on the fund's net value.
"If the position is small, it may not matter much, as the impact on the net value is not significant, but if the position is large, not adjusting the valuation creates an arbitrage opportunity," said an insider from a South China fund company to the First Financial Daily. This move is mainly to avoid arbitrage and treat investors fairly, and it mostly applies to heavily held stocks by funds.
The public fund's holdings of Guotai Junan and Haitong Securities are not small. Wind data shows that as of the end of the second quarter, 36 fund companies held 278 million shares of Guotai Junan, with a total market value of 3.768 billion yuan; Haitong Securities had 25 public funds holding 596 million shares, with a total market value exceeding 5.1 billion yuan.
Looking at individual funds, there are 63 and 42 funds holding these two stocks, with most of the leading holders being ETF products. Among them, the Guotai China Securities ETF holds Guotai Junan and Haitong Securities with a market value of more than 1 billion yuan, at 1.868 billion yuan and 1.381 billion yuan, respectively, accounting for 1.36% and 2.46% of the circulating shares.
The Huabao China Securities ETF holds Haitong Securities with a market value of 1.249 billion yuan, accounting for 1.64% of the circulating shares. In addition, the Southern China Securities ETF, Tianhong China Securities ETF, and E Fund CSI 300 Non-Bank ETF are among the products holding the largest number of shares in these two companies.Based on past experiences, when fund companies adjust the valuation of suspended stocks, it implies that they believe the current suspended price does not reflect the latest fundamental situation. Recently, several fund companies have also adjusted the valuations of long-suspended, continuously falling, or delisting-imminent stocks held by their funds.
For instance, on September 21, Huitianfu Fund announced that starting from the 20th, it would value the "Ant Group (06606.HK)" held by its securities investment funds at 3.32 Hong Kong dollars per share. On September 6, Zhonggeng Fund stated that starting from the 5th, it would adjust the valuation of the suspended stock "Qiming Medical-B" (02500.HK) held by Zhonggeng Hong Kong Stock Connect Value, valuing it at 2.90 Hong Kong dollars per share.
"Valuation adjustments are made to better protect the interests of investors and ensure that the net value of fund products can timely and accurately reflect the asset conditions," said the person from South China mentioned earlier. In their view, the valuation of suspended stocks by fund companies actually represents the fund companies' judgment on the future trend and outcome of the stock. Although it may not completely align with future circumstances, it can at least largely avoid arbitrage activities, thereby treating every investor as fairly as possible.