Speculative wave on the Shenzhen exchange: When the white metal attracts unlimited interests

An interesting market episode is unfolding on the Shenzhen exchange. The UBS SDIC Silver Futures fund, the only investment option for direct exposure to the white metal on China’s main exchange, is facing unprecedented buying pressure. Shares of the fund are trading at a premium of up to 60% over their actual net asset value, triggering a series of market mechanisms and safety measures.

What drives this attractiveness on the Shenzhen exchange?

The fund’s unique market position is a key factor. While investors in other countries have a range of options to buy silver, the Chinese market offers only one main instrument through the Shenzhen exchange. This limited supply, combined with growing interest in precious metals, has created a perfect storm of demand. As a result, the fund had to suspend new subscriptions to prevent further uncontrolled increases and to protect existing investors from overvaluation.

Can lessons be learned from past cases?

A similar phenomenon was observed with the GBTC Bitcoin Trust, where shares traded significantly above their intrinsic value. The parallel lies in whether the investment instrument is the only way to gain exposure to that asset. The investment community is currently debating whether such overvaluations in Shenzhen exchange funds are sustainable or if they are temporary speculative swings.

Fund warnings and market risks

Fund managers explicitly warned about the unsustainability of current prices. The trading suspensions that have been initiated clearly signal regulatory and market concerns. The situation highlights the volatility of investment instruments on the Chinese market, especially those related to precious metals. Investors should carefully consider whether they are entering a position based on the true value of silver or on a speculative premium that is unlikely to be sustainable in the long term.