China exchange traded funds have picked up their respective paces in recent weeks, but investors should not gloss over Hong Kong ETFs.
Last week, Goldman Sachs forecast the Hang Seng China Enterprises Index, which is comprised of Chinese companies listed in Hong Kong, will jump 19% by the end of 2014 while noting plenty of global fund managers are still underweight Chinese shares, indicating that potential upside for stocks listed in Hong Kong and on the mainland is not fully priced in. [China, Hong Kong ETFs Could Climb in 2014]
As China ETFs have improved in recent weeks, the iShares MSCI Hong Kong ETF (NYSEArca: EWH) has been a solid performer with a gain of 2.5% over the past month. To its credit, EWH has been rebounding after taking a tapering spill of its own the second quarter. That is when the $2.2 billion ETF fell from just over $20 to around $17.50 on speculation the Federal Reserve was preparing to cut its bond-buying program. [Asia ETFs may be Able to Endure Tapering After All]
EWH, which grants investors exposure to an AAA-rated market, may just be getting started.
“After breaking down below the 40-week moving average during the summer, $EWH popped back above the 40-week MA in September. A few weeks later, the 10-week moving average crossed above the 40-week moving average,” writes Deron Wagner of Morpheus Trading Group.
Wagner goes on to note “In addition to the 10-week moving average crossing above the 40-week moving average, notice that EWH has also formed a very tight range above its rising 10-week moving average. If the price of EWH can continue to trade in a tight range, we should soon see a breakout to a fresh 52-week high.”
There are alternatives to EWH starting with the First Trust Hong Kong AlphaDEX Fund (NYSEArca: FHK), which like the other First Trust AlphaDEX funds, eschews cap-weighting in favor of focusing on growth and value factors.
And there is the iShares MSCI Hong Kong Small-Cap ETF (NYSEArca: EWHS). EWHS is up 20% this year while FHK is higher by 7.2%.
iShares MSCI Hong Kong ETF
ETF Trends editorial team contributed to this piece.