The Dow drops over 500 points last week and it dropped 146 points on Friday. Oil is at its all time high as well. Hong Kong stock market will definitely open down tomorrow. It seems like the bears have come back and stocks will continue to be weak this week. Better to buy some put on the HSI / HSCEI to protect your gain.
In previous post we have discovered that EWH, the popular iShares HK ETF, does not hold any stocks in Chinese enterprise. There is another popular ETF from iShares that holds Chinese enterprise shares only-FXI. FXI tracks the FTSE/Xinhua China 25 Index.
This ETF buys H-shares only. H-shares are tradable shares on the Hong Kong Stock Exchange, issued from companies that are incorporated in China. The top three holdings of FXI as of today are China Mobile (941 HK), ICBC (1397 HK) and China Life (2628 HK). This ETF has captured the biggest H-share companies in the HK Stock Exchange.
If you are bullish on the large Chinese corporates, you definitely should consider buying FXI. This FXI ETF should track quite well with the HSCEI (Hang Seng China Enterprise Index) – the second most important index in the Hong Kong Stock Market. There are FXI call/put options too which can give you long/short exposure.
Over the past two days, the HSI drops in the morning and then rises in the afternoon. A tug of war is between the bulls and the bears. Why would the bulls be more powerful in the morning and the bears be more powerful in the afternoon?
I hereby present two possible reasons:
The afternoon rise often contributes to the rise of Chinese stock markets over lunch time. If Chinese stock markets turn strong, there is a very high probability that the HK stock market will pull back up.
The morning orders are usually overnight orders sent from overseas over the night. Does it mean that overseas investors are pulling funds from the HK market?
If you only have an US securities account and want to have exposure in the Hong Kong stock market, the easiest and most efficient way is buying an ETF. There are multiple ETFs in the US that have exposure in the HK market, but the most established, high volume traded ETF that has exposure in the HK market is definitely iShare MSCI Hong Kong Index Fund (EWH). Nevertheless, this famous HK ETF has its shortcomings.
The top five holdings in the fund are: Cheung Kong (1 HK), Sun Hung Kai (16 HK), Hong Kong Stock Exchange (388 HK), Hutchison Whampoa (13 HK) and Hang Seng Bank (5 HK). The ETF definitely covers the most important companies in the actual HK economy. But people may ask, “Where is HSBC (5 HK) or China Mobile (941 HK)?” These two stocks are the big elephants in the Hang Seng Index. These two stocks often contribute a few hundred points to the daily rise or drop in the Hang Seng Index; yet they are not included in the MSCI HK index. The reason behind this is that MSCI do not include these two stocks because these two companies have high foriegn ownership (HSBC is the biggest bank in HK, but then it is a British Bank; China Mobile is the largest mobile operator inside mainland China).
These days the HK stock market correlates more with the mainland stock market than the US market, but yet this famous ETF does not hold any Chinese state enterprise companies listed in Hong Kong. Nor does it even hold HSBC, the big elephant in HK stock market. Shouldn’t the MSCI people re-look at what’s in EWH currently and re-define their compsition?
The Hang Seng tumbled from the beginning to the end of the day today. This is due to A shares retreating on the same day. There are not that many new reasons prompting this drop. People may be selling to capture some profit in the past few weeks. There are renewed concerns about the Chinese economy. Olympics-related shares such as Li Ning are tumbling fast too. Seems like sentiments are changing. US is currently down now. Probably the Hang Seng will continue its rapid drop tomorrow?
Stocks were up quite a bit last week, will this continue? The main factors contributing to the rise are:
Better investment environment globally: people believe that we are “closer” to the end of the subprime crisis.
The Fed lowered interest rate again as expected
Mainland China’s equity marketing is gaining momentum again. People believe that the government will continue to exert measures to prop up the stock market. Even the day before Labor Day, A-shares were up more than 5%. If the long weekend happened a month ago, people would probably have sold before the holidays. Therefore, confidence is definitely quite strong these days inside China.
I personally believe that stocks worldwide should be doing ok, unless something spectacular happens that will change the tone of the market drastically. I would suggest selling what you currently own in the next few weeks, as I believe that the overall environment is definitely not as good as last year’s. Subprime probably won’t end that quickly.
