Buoyed by strength in Chinese stocks and a technical breakout in the benchmark Hang Seng, investors are running back to Hong Kong exchange traded funds.
Hong Kong’s Hang Seng is up 9% over the past three months, making it one of the best-performing benchmarks in developed Asia over that time. Hong Kong stocks ave been playing catch up to other stronger global markets. Hong Kong equities have jumped over 20% from the March lows as speculators anticipated rebound in Chinese growth, following additional mini-stimulus measures enacted. [The Pleasant Surprise of Hong Kong ETFs]
The Hang Seng broke out in July when it closed at 24,757. In August, it pulled back to test the breakout level, bouncing immediately from the level. A close below that breakout level now becomes a natural stop loss point for longs,” writes Dana Lyons of J. Lyons Fund Management.
Lyons goes on to note that if the Hang Seng can run back to its 61.8% Fibonacci projection from the 2008 to 2010 rally, that could carry the index back to 33,000, or nearly 33% above where it closed Tuesday.
Some traders appear to be bracing for more upside in Hong Kong stocks and are doing so with ETFs.
“ETFs under the Renminbi Qualified Foreign Institutional Investor (RQFII) posted significant net inflows of 8.2 billion yuan ($1.33 billion) in July, the highest since December 2012 and nearly doubling from June,” reports Michelle Chen for Reuters.
In a departure from what is currently being seen with Singapore ETFs, where those ETFs except the ones trading in the U.S. are gaining cash, U.S.-listed Hong Kong funds are catching investors’ attention. Like Singapore, Hong Kong is a developed Asian market with an AAA credit rating. [It’s Not All Rosy for Singapore ETFs]
From the start of the third quarter through Sept. 8, the iShares MSCI Hong Kong ETF (NYSEArca: EWH), the largest Hong Kong ETF trading in the U.S., added $1.22 billion in new assets. Only five ETFs have gained more cash this quarter.
The First Trust Hong Kong AlphaDEX Fund (NYSEArca: FHK) has added $3.92 million this quarter, which may not sound like much until considering the fund has $8.1 million in assets under management.
A significant chunk of FKH’s 54.5% weight to the financial services sector goes to property developers, a group that has been controversial in Hong Kong and China. Still, those stocks, several of which are found among FKH’s top-10 holdings, are soaring because local governments have loosened home-buying requirements in a bid to prop up sales. [Hong Kong ETFs on the Move to the Upside]
EWH and FHK are up 8.2% and 5.7%, respectively, year-to-date.
iShares MSCI Hong Kong ETF
ETF Trends editorial team contributed to this post.