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Hong Kong ETFs
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About Hong Kong ETFs |
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Emerging markets Hong Kong ETFs Overview and forecast
There's only one ETF listed on our chart at the moment, but it's performing very well, and trading volumes are enormous. The Hong Kong market is an interesting hybrid market, being a surviving element of Hong Kong's glory days as a prosperous colony, and Chinese investors have taken to ETFs quickly.
The sole ETF, iShares MSCI Hong Kong Index Fund (AMEX:EWH) is a study in itself. This is a stock equity ETF, based on the Hong Kong market, which contains some strong, well supported stocks. The ETF works directly on the returns from the MSCI Hong Kong index, and the list of holdings is a mix of that index, usually using relatively higher weights of around 6- 7% in stocks held.
The Hang Seng is one of the world's leading markets, and its dynamics have if anything improved since the return to China, as Chinese buyers have backed up trading volumes and margins. The Chinese market, by global standards, is jumpy, hyperactive, and fast. So EWH has had quite a ride in the post crash environment, but it's also proved it can come back very rapidly, and credibly. The recovery in prices is very much in line with other global and US equity ETFs, and the trading patterns are impressive, in terms of consistency.
Short term (6 months)
Like all Chinese ETFs, the Hong Kong ETFs should be considered to be prone to movement in a hurry, either way. There's been some talk of ETFs being overbought, but the fact is that in a limited investment market, what's available is what's bought. EWH has behaved like any normal high volume traded ETF, just on a larger scale of volumes.
EWH has gone from under $9 in March 2009 to $14 in mid June 2009. That's a pretty good margin in anybody's language, and the various downward moves in the interim have been small. Looking at this price range as a bandwidth, you'd have to say that the ETF is at the top of its post crash range, and the upside is therefore lower, on proven values.
Medium term (2 years)
EWH has been highly successful as a trader, it pays good dividends, and it's a basically strong entity as an investment vehicle. It's extremely unlikely that it will have the market to itself in future. The Chinese government has been talking for years about building up the investment market, and soaking up liquidity, which is quite necessary, for China's economy to become a full modern market economy. Behind that is a much higher range of capital options for market development.
The ETF market is good business. China's huge, diverse corporations and economic range are the perfect place for development of investment methodologies and indices, the natural breeding ground for ETFs. It's also a natural direction for capitalization, in the world's biggest emerging capital market. The medium term should see some interesting developments, and could be a very good place to get in on the ground floor when the new ETFs get up and running.
Long term (5 years)
The long term is very positive for the broader development of Chinese capital markets, and the probability is that within the decade, a fully fledged secondary derivatives market will have opened up. That will drive the Hong Kong companies, particularly the financial heavyweights, into the creation of new products, and ETFs are the obvious choice for a fast, dynamic capital market like China.
For market economists, this is going to be a first chance to see a capital market developed from scratch, particularly on this scale. Exactly how they create an investment market is going to be extremely interesting, and probably very profitable. China is capable, in capital terms, of creating very large entities for investment. It remains to be seen how this will work, but it will work. The domestic investment market is looking for opportunities, and there's no doubt that the demand will create the products.
Qualifiers to projections
The overall outlook is very positive, but this is China we're talking about. Doing business in China has been driving the Chinese to distraction for millennia, and there's one basic concept that has to be understood in investing in this market:
Nothing is simple. China isn't a monolith. The dragon often operates like a Hydra. Apparent contradictions are common, if you don't understand that China is a highly diverse place itself.
There are vested competing interests, there are oligarchies, hierarchies, and ranges of private interests. ?Communist? China, ironically, is following very much the Chinese way of doing things from ancient times. Complexity is the natural form of Chinese business. Instead of an Emperor, they have these giants, and quite a few of them. The Chinese investment market is likely to become the world's most highly capitalized market, and it can do that in a hurry. That means the picture will get pretty fuzzy from time to time, and investors must research and clearly understand their market.
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Last Updated on: 2010-01-14 02:03:40 |
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agree not to redistribute the information found herein. ETF Values can go up as
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