China's sole silver futures fund slumped by its 10 percent daily limit on Friday, its sixth straight session of decline, after a global selloff in precious metals wiped out significant investor gains.
The fund tumble followed a one-hour trading halt at the open designed "to protect investors" in a product that was trading at a huge premium to net asset value.
The UBS SDIC Silver Futures fund , China's only exchange-listed pure-silver product, is now down more than 40 percent from its January 26 peak.
But the fund, at 3.099 yuan per unit on Friday, still trades at a 29 percent premium over its net asset value of 2.4073 yuan.
The rich premium reflects both investors' feverish bets on silver when the metal was soaring, and China's daily trading limit that prevents prompt valuation adjustment.
"Investors could suffer severe losses if they blindly invest in fund units trading at a high premium," the UBS SDIC Fund Management, which manages the silver fund, cautioned in a statement on Friday announcing the trading suspension.
The Chinese fund venture of UBS said it reserves the right to apply for intraday trading halts or extend the suspension if the premium does not decrease effectively after trading resumes.
"The episode highlights how the fund's structure, combined with daily price limits in Chinese markets, allowed its secondary-market price to detach materially from underlying value during the rally," Ole Hansen, head of commodity strategy at SAXO wrote.
He said the fund's performance has dented investor sentiment and that "until volatility subsides and price discovery improves, gold, and especially silver, is likely to trade violently in both directions."
UBS SDIC Fund Management did not immediately reply to a request for comment.
REUTERS
