Chinese Fervor for Overseas Equities Is Breaking ETF Trading (1)

Burned by years of underperformance in Chinese domestic stocks, local investor appetite for overseas equities is running so high that it’s fueling huge price distortions in funds tracking these assets.

Chinese traders are willing to pay as much as 40% more than the value of the underlying assets in some exchange-traded funds in order to obtain exposure to foreign stocks. That’s triggering trading halts in a number of ETFs as well as purchase limits.

With the S&P 500 Index hitting a record high and gauges in Japan reaching levels last seen decades ago, it’s not hard to see why Chinese ...