The Hang Seng Index, the benchmark equity gauge in Hong Kong, finished lower last week, extending its one-month decline to 11.4%. The iShares MSCI Hong Kong ETF (NYSEArca: EWH) is responding with a dramatic one-month decline of its own, one equaling more than 13%.
Count EWH among the exchange traded funds that have been punished in the wake of China’s decision earlier this month to devalue its currency, the yuan. Global financial markets have been roiled after China let its renminbi currency depreciate, and some Asian emerging markets, along with country-specific exchange traded funds, will continue to feel the consequences of the weaker yuan.
A depreciating yuan makes Chinese exports more competitive in international markets. However, the beggar-thy-neighbor policy will negatively affect the country’s major trading partners. [Yuan Slide Slams EM ETFs]
Not surprisingly, slack Chinese economic data points are plaguing the Hang Seng.
“A report Friday showed a private gauge of Chinese manufacturing unexpectedly fell to the lowest level in more than six years, suggesting the world’s second-largest economy will need further policy support to stem a deepening slowdown. Concern that demand is weakening has driven a commodities rout that’s erased $2 trillion from the value of mining and oil companies since the middle of last year,” according to Bloomberg.
EWH also has to contend with U.S. interest rate policy because the Hong Kong dollar is pegged to the U.S. dollar. Additionally, the ETF’s significant finance, real estate, and construction makes its vulnerable to changes in Fed policy. The Chinese territory has an AAA credit rating.
China H-shares-related ETFs are also showing more attractive valuations relative to the China A-shares market where the Shanghai Composite and the small-cap Shenzhen Composite are still relatively expensive, even after the correction, trading at an average price-to-earnings ratio of about 20 and 50 times, respectively. [Interested in China? H-Shares ETFs Are a Cheap Play.]
However, EWH lost more than 5% last week and hit a 52-week low on Friday.
iShares MSCI Hong Kong ETF
