What Went Wrong With Hong Kong Small Caps? (EWH, HKK, HAO, EEM, VWO)

Chris Aylott: When IndexIQ launched the IQ Hong Kong Small Cap ETF (NYSEARCA:HKK) on May 18, it was hailed as the first ETF to target small-cap companies in the region. Six months later, it’s looking like a bad bet.

Granted, 2011 hasn’t been great for Hong Kong. The Hang Seng Index was down 16% between April and October, and the economy grew just 0.1% in Q3.

While annualized growth in 2011 is still expected to be 5%, Chief Executive Donald Tsang says growth may slow to 2% next year.

But what looks bad for big companies is traditionally a lot worse in the small caps.

HKK sold for $20.10 when it debuted. It closed at $14.64 on November 15. That’s a 27% drop.

HKK has improved over the last month, recovering from a low of $11.32 on October 4.  But it has consistently lagged the large-cap MSCI Hong Kong Index Fund (NYSEARCA:EWH) from iShares.

EWH performed better than HKK on every day except July 12, and is down 16% over the same six-month period.

HKK has spent most of its short life between $15 and $18, so now may be a good time to get in. But as EWH demonstrates, there are other deals out there — for example, Guggenheim China Small Cap ETF (NYSEARCA:HAO)which gets direct exposure to China’s small-cap growth story.

Written By Chris Aylott From Emerging Money

Emerging Money provides insightful and timely   information about the increasingly important world of Emerging Market   investments. CNBC Emerging Markets Contributor Tim Seymour leads the   team of Emerging Money to bring you cutting edge global news and  analysis.

 

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