Executive Summary
– The SDIC Silver Futures LOF, China’s sole listed open-end fund tracking silver futures, suffered a 31.5% single-day net asset value adjustment after a sudden revaluation, leading to massive investor losses and outrage.
– Post-trading halt, the fund’s price collapsed over 40% in five consecutive limit-down sessions, with sell orders exceeding RMB 10 billion trapped, highlighting severe liquidity crunches in specialized products.
– Investors accuse SDIC of inadequate risk disclosure on valuation disparities between domestic and international markets, with complaints flooding regulators over transparency failures.
– SDIC has established a task force to address grievances, but critical demands for compensation, liquidity support, and system improvements remain unresolved, fueling market uncertainty.
– This mutual fund liquidity and valuation storm underscores structural risks in commodity-linked LOFs and may drive regulatory enhancements to safeguard China’s capital markets.
A Perfect Storm in Early 2026
The opening months of 2026 have been rocked by a mutual fund liquidity and valuation storm that has sent shockwaves through China’s investment community. At the eye of this storm is the SDIC Silver Futures LOF, a niche product that became a focal point after its net asset value was slashed by 31.5% in a single day. This unprecedented move, following a trading halt and compounded by consecutive limit-downs, has left investors trapped with massive losses and furious over what they perceive as a lack of transparency. As complaints flood in and SDIC scrambles to respond, this crisis exposes deeper flaws in the structure of commodity-linked funds and the regulatory frameworks governing them. For international investors watching Chinese equities, this event serves as a stark reminder of the unique risks embedded in specialized financial products within the market.
The Genesis of the Crisis: From Silver Surge to Sudden Collapse
The mutual fund liquidity and valuation storm began with a seemingly benign asset: silver. Benefiting from the strongest rally in a decade, international silver prices soared, driving the SDIC Silver Futures LOF’s net asset value from RMB 1.26 in October 2025 to RMB 5.25 by January 29, 2026—a staggering 300% gain. This meteoric rise attracted a flood of retail and institutional investors, ballooning the fund’s assets under management from RMB 4.3 billion to over RMB 10 billion. However, this capital influx masked underlying vulnerabilities, as the fund’s structure tied it to volatile commodity futures with inherent liquidity constraints.
Meteoric Rise and Inflated Expectations
The SDIC Silver Futures LOF’s performance was initially hailed as a success story in China’s diversifying mutual fund landscape. As silver prices climbed, the fund’s popularity surged, with daily trading volumes spiking and new investors chasing returns. According to data from East Money Information, the fund’s premium to its net asset value expanded significantly, indicating speculative fervor. Yet, this euphoria was built on shaky ground, as the fund’s design—tracking silver futures through a listed open-end structure—created a disconnect between domestic price limits and international market movements. This set the stage for the impending mutual fund liquidity and valuation storm.
The Trigger: Trading Halt and Valuation Adjustment
Investor Fallout and Mounting AngerThe aftermath of the valuation cut has been characterized by widespread investor fury and coordinated complaints. Hundreds of aggrieved investors have lodged formal protests through platforms like Phoenix Net, citing losses from the sudden revaluation and the liquidity freeze during the trading halt. Core grievances center on the lack of prior warning, perceived mismanagement, and the ethical implications of SDIC’s actions. This mutual fund liquidity and valuation storm has not only eroded trust but also highlighted systemic issues in investor protection mechanisms.
Core Complaints and Unmet Demands
Investors’ demands are clear and pressing. First, they seek clarity on the timing of the valuation adjustment and potential compensation for those who redeemed at the lower price. Second, they demand solutions to the liquidity crisis, as the fund’s price has been locked in limit-down for five straight sessions, with sell orders totaling over RMB 10 billion unable to execute. Third, they accuse SDIC of insufficient risk disclosure, arguing that earlier warnings did not adequately cover the possibility of such a severe revaluation. Fourth, they call for concrete measures, such as buybacks or liquidity injections, to mitigate losses. These unresolved issues keep the mutual fund liquidity and valuation storm raging.
SDIC’s Response: Too Little, Too Late?
In response, SDIC issued a公告 (announcement) on February 6, 2026, pledging to address investor concerns through a dedicated task force and offering mediation channels like arbitration. While this step acknowledges the crisis, it falls short of addressing key questions. The公告 lacks specifics on compensation or liquidity support, leaving investors skeptical. For instance, it does not confirm whether the valuation adjustment will be revised or if affected investors will receive restitution. This vague response fuels perceptions that SDIC is prioritizing damage control over genuine accountability, prolonging the mutual fund liquidity and valuation storm.
Regulatory and Structural Vulnerabilities Exposed
This incident has laid bare critical weaknesses in China’s mutual fund ecosystem, particularly for specialized products like LOFs tied to commodities. The mutual fund liquidity and valuation storm underscores how product design, regulatory gaps, and risk management failures can converge to create perfect storms. As authorities scrutinize the事件, broader implications for market stability and investor confidence come to the fore.
The LOF Product Design and Its Pitfalls
Listed Open-End Funds (LOFs) like the SDIC Silver Futures LOF offer dual trading venues—primary market redemptions and secondary market exchanges—but this structure can amplify risks during volatility. When international silver prices diverged sharply from domestic futures due to daily limits, the fund’s net asset value became misaligned with its market price, necessitating the controversial adjustment. This暴露 (exposes) a fundamental flaw: LOFs tracking volatile assets may lack robust mechanisms to handle cross-market discrepancies, leading to liquidity crunches and valuation shocks. Regulators may need to revisit guidelines for such products to prevent future mutual fund liquidity and valuation storms.
Risk Disclosure Gaps and Managerial Accountability
SDIC’s risk disclosures, while technically compliant, failed to adequately warn investors about the potential for sudden, large-scale valuation changes. According to fund documents, risks related to international price differences were mentioned but not emphasized, leaving retail investors unprepared. This highlights a broader issue in China’s mutual fund industry: risk communication often prioritizes legal formalism over practical clarity. Moving forward, enhanced disclosure requirements and stricter oversight of fund managers’ fiduciary duties could mitigate similar crises. The mutual fund liquidity and valuation storm serves as a cautionary tale for all asset managers.
Market Implications and Path Forward
The reverberations of this mutual fund liquidity and valuation storm extend beyond SDIC, impacting the entire Chinese mutual fund sector and influencing global investor perceptions. As the dust settles, key stakeholders—from regulators to investors—must chart a course toward greater resilience and transparency.
Impact on Chinese Mutual Fund Industry
Guidance for Investors and Regulatory Call to ActionKey Takeaways and Next StepsThe SDIC Silver Futures LOF debacle is more than an isolated scandal; it is a symptom of deeper systemic issues in China’s capital markets. The mutual fund liquidity and valuation storm highlights the perils of speculative bubbles, inadequate risk management, and regulatory lapses. Investors must remain vigilant, prioritizing products with transparent structures and robust liquidity profiles. For fund managers and regulators, this is a wake-up call to enhance safeguards and foster a culture of accountability. As China’s markets evolve, learning from this crisis will be crucial to building a more resilient financial ecosystem. Stakeholders are urged to monitor regulatory announcements and adjust strategies accordingly to navigate future uncertainties.