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.

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?