While China Lags, This Hong Kong ETF is Near All-Time Highs

August 25, 2016 11:59am NYSE:EWH

The iShares MSCI Hong Kong Index Fund ETF (NYSE:EWH) has outperformed the wider Chinese market this year, and more gains could be on the way.


From ETF Trends:

Just as investors departed FXI earlier this year, EWH was hit by outflows as well. However, stocks listed in Hong Kong still offer substantial discounts relative to their mainland counterparts. The issue is getting foreign investors to renew their interest in Hong Kong shares.

“Foreigners, however, are still sitting on the sidelines of the Chinese market, despite buying other major emerging markets in the last few months,” reports Shuli Ren for Barron’s. “Year to date, they’ve sold $3.4 billion in China stocks and another $1.9 billion of Hong Kong companies’ stocks. But sentiment could change. In the last week, foreigners turned net buyers, pumping in $912 million, the largest weekly flow in five months.”

As inflows turn positive, other catalysts are on the horizon as well:

The recently unveiled Shenzhen-Hong Kong connect could be another catalyst for Hong Kong stocks as more mainland investors will have access to offshore equities. Mainlanders will have access to 417 Hong Kong-listed stocks, a third more than the through the Shanghai link, with the addition of small-caps.

“Even after the recent rally, the Hang Seng Index has reached only a nine-month high, while the Hang Seng China Enterprises Index, or H-shares index, has broken even just this year, and trades at only 7.6 times earnings,” according to Barron’s.

That’s a pretty attractive valuation for a fast-growing Hong Kong economy, which offers the best of both worlds: access to the massive Chinese market, without the overhang of too much Chinese government interference.

EWH-2016-08-25

EWH rose $0.05 (+0.24%) to $21.01 per share in Thursday afternoon trading. EWH has gained about 6% year-to-date, which is roughly in-line with the S&P 500 in the same period.


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