Chinese share market has seen greatest level of volatility since the finance crises. Investors should note that stocks listed in Hong Kong are mostly not the same as China. Because of strict capital controls and closed financial market. Most of the Chinese ETF listed in the US tracks stocks listed in Hong Kong.
It is only recently the Chinese government allows international investors to deploy capital into the China through the Hong Kong – Shanghai connect.
While the mainland equities can be considered to be bubble territory. Hong Kong is relatively cheap. It is also being sold off in sympathy to the volatility in the Shanghai and Shenzhen Index.
The largest Hong Kong ETF is the iShares MSCI Hong Kong ETF (EWH). EWH tracks the 40 largest companies listed in Hong Kong. With average market P/E only 10x, it can be attractive for value conscious investors.
Hong Kong Index Performance
The fund characteristics below highlight some important factors EWH can contribute to the portfolio. Hong Kong ETF beta is close to zero. This means that the returns of the index is uncorrelated with the S&P 500.
Additionally, P/E and P/B ratios of the fund are not overly expensive. Sector exposure however shows almost 1/3 of Hong Kong ETF value is in the real estate sector. This include Hong Kong REITs and developers.
The second largest sector is Insurance which is made up of AIA.
Mining Exchange Traded Funds would be one of the best sectors that is leveraged to the recovery in Chinese economic growth.