ETF XRAY

Hong Kong ETF (EWH) at Ten Year Anniversary

As the tenth anniversary of the turnover of Hong Kong to China rule approaches on July 1st, the open and free Hong Kong market and the iShares Hong Kong exchange-traded fund that tracks it (EWH) is showcasing its traditional strengths and free market foundations.

Today the Shanghai Composite index made up of "A" shares available only to Chinese investors dove 4.5% but the rest of Asia and Europe for that matter, rather than being rattled by China uncertainty and volatility, followed the US lead and rose smartly. (Nikkei index +0.46%, Hang Seng +1.07%, Australia +1.32%). The European stock markets this morning are trading with solid gains due to yesterday's US rally. The European DJ Stoxx 50 is up +0.74% this morning.

China has created its market problem by not fully embracing free markets. Meanwhile Hong Kong, rather than being eclipsed by Shanghai, has thrived. In June 1997 mainland companies (H Shares and Red Chips)accounted for just 13 per cent of the market; today they make up almost half the market capitalization. Partly as a result of mainland issuance, Hong Kong’s market capitalisation has almost trebled to nearly US$2,000bn and its average daily trading volume is around $15 billion. The market is now trading at about 16 times projected earnings but this is nothing compared to the multiples on mainland markets.

The Hong Kong iShares ETF (EWH) has its own flavor with an emphasis on real estate and financial companies. Find out more about the best way to play the China growth story by joining the Chartwell ETF Advisor today.

By Carl Delfeld, author of "ETF Investing Around the World"

Vanguard Pacific Stock ETF (VPL)

The top ten positions of Vanguards Pacific ETF make up 18.2% of the exchange traded fund. VPL is diversified between four key countries: 1) Japan 70.10%; 2) Australia 20.20%; 3) Hong Kong 5.60%; 4) Singapore 3.60%; 4) New Zealand 0.50%.

By DE Smith of MyPortfolioView

Big Bucks Drive Hong Kong ETF

The Hong Kong ETF (EWH) is thought by some investment advisors like Carl Delfeld to be a better play on Chinese growth than the China ETF (FXI). For starters, the Hong Kong ETF basket is full of private companies while the China ETF is dominated by large state-owned companies. The Hong Kong ETF is also slanted towards financial services and real estate and Chinese money is piling into both.

The current Economist reports that the prestigious Peninsula Hotel in Hong Kong just received the keys to fourteen Rolls-Royce Phantoms priced at US $400,000 apiece plus a luxury tax equal to the purchase price. Twenty of these beauties are sold each year in Hong Kong and about seventy each year in China. Real estate prices in the city are also going through the roof with a modest nothing fancy apartment nowhere near the peak are going for US $12,000 a month.

The Hong Kong ETF is up 24.5% over the past twelve months and up 2.44% this year while the China ETF is down 8% this in 2007.

Southeast Asian ETFs Manufacturing Power

Asian ETFs such as the South Korean ETF (EWY), Singapore ETF (EWS), Indonesian ETF (IF), Malaysian ETF (EWM), Taiwan ETF (EWT), India ETF (IIF) and the Philippines are all benefiting from a surprising trend in global manufacturing.

In eight months Intel has committed as much money to Vietnam as it had to China during the previous ten years. In Malaysia, Flextronics has ramped up the production lines of a new M$400m ($110m) factory to make computer printers for another American firm, Hewlett-Packard and in Indonesia, Yue Yuen, a Hong Kong-based shoemaker, has been rapidly increasing its footwear for brands like Nike and Adidas.  

All of these developments are highlighted in a current Economist article that describes how South East Asian countries, rather than being hurt by Chinese growth, are being helped by it. Taken together, South Korea, Taiwan, India and the Association of South-East Asian Nations (ASEAN) increased their share of global manufacturing from less than 7% to more than 9% in the decade to 2003. Exports also rose across the board.

Interestingly, only the United States and Canada saw their shares of global output rise—with just over a quarter between them. Most things nowadays might seem to be made in China, but North America remains the true workshop of the world. American manufacturing output leads the world and is twice its nearest competitor,
Japan.  

As the Economist article points out, costs are only part of the equation. Just as important is diversification. Having already moved a big chunk of their production to China, many firms are reluctant to put any more of their eggs in the same basket.