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?
