Emerging markets exchange traded funds have been solid performers this year. Making the performances of many diversified emerging markets ETFs all the more impressive is the fact that China, the largest developing economy, is a laggard.
Earlier this year, traders were seen departing the iShares China Large-Cap ETF (NYSEArca: FXI), the largest China-related ETF trading in the U.S., in size. In addition to some economic headwinds, Chinese stocks faltered last month after index provider MSCI said it is again delaying the inclusion of China A-shares, the stocks trading in Shanghai and Shenzhen, in its widely followed emerging markets indexes.[related_stories]
Chinese A-Shares are a specific class of equity securities issued by Chinese companies and denominated in RMB. Under current Chinese regulations, foreign investors may access A-Shares if they are a designated foreign institutional investor or gained access through either the Qualified Foreign Institutional Investor (QFII) or a Renminbi Qualified Foreign Institutional Investor (RQFII) programs.
However, some Asia ETFs have recently been springing to life, a group that includes the iShares MSCI Hong Kong ETF (NYSEArca: EWH).
“The Hang Seng Index in Hong Kong, which often moves in a similar manner with China, broke ranks with the larger market last week by breaking out through resistance. That gave it a series of higher highs and higher lows as well as cementing its cross above its 200-day average,” reports Michael Kahn for Barron’s.
Related: Are China ETFs Ready to Rally?
Just as investors departed FXI earlier this year, EWH was hit by outflows as well. However, stocks listed in Hong Kong still offer substantial discounts relative to their mainland counterparts.
Over 260 U.S.-listed ETFs feature some exposure to China with marquee names including the iShares China Large-Cap ETF, which is the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange. H-shares, or the Chinese stocks trading in Hong Kong are some of the least expensive stocks in the world and FXI has a price-to-earnings ratio below that of the MSCI Emerging Markets Index.
Related: 15 Cheap Emerging Market ETFs
EWH “echoes this pattern, although its on-balance volume indicator suggests it needs to test that breakout. By measuring the amount of money changing hands on rally days and comparing that to money on declining days, on-balance volume gives us an idea of the demand for the ETF. Right now, the indicator is still in decline for the year, which makes it a better idea to put this one on the radar screen for analysis in two or three weeks,” according to Barron’s.
iShares MSCI Hong Kong ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.