EWH: China Remains The Contrarian Trade

seekingalpha03-29

iShares MSCI Hong Kong ETF offers exposure to the Hong Kong stock market and could potentially offer high returns if the market rebounds.The EWH ETF holds a portfolio of 31 stocks, with the top five ...

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Weiyi Zhu/DigitalVision via Getty Images China has been an extraordinarily challenging place to invest for many years. \"Statement risk\" is real for allocators when it comes to investing in China because of the pushback their clients give on investing outside the U.S. I don't know about you, but I am a believer in cycles. This has been a brutal one for China, but it could turn favorable, if anything just because no one believes it can. One way to play a cycle turn for China is through the iShares MSCI Hong Kong ETF (NYSEARCA:EWH). This exchange-traded fund is based on the MSCI Hong Kong 25/50 Index, which includes large and mid-sized companies in Hong Kong. It's a decent sized fund, with total assets under management, or AUM, of nearly $500 million, and an expense ratio of 0.50%. ETF Holdings EWH holds a portfolio of 31 stocks, with the top five positions making up a whopping 47% of the fund. The largest positions include:   AIA Group is the largest holding, making up 21.93% of the portfolio. An international insurer, AIA Group's life insurance faces stiff competition in Asia, yet it remains a dominant player.  Hong Kong Exchanges and Clearing Limited is the second-largest holding, accounting for 11.33% of the portfolio. As the monopoly operator of the stock exchange and clearing house in Hong Kong, it has a significant competitive advantage.  Techtronic Industries, a power equipment manufacturer, took the third spot, representing 4.72% of the portfolio. Despite the competitive nature of their market, Techtronic Industries has managed to carve out a successful niche for itself.  Sun Hung Kai Properties, a property developer, holds the fourth spot at 4.71%. Despite the challenging real estate market in Hong Kong, Sun Hung Kai Properties has shown resilience.  One can argue this is a negative, and I don't disagree. The bet is that these companies are fair representations of Hong Kong's market. Regardless of whether they are or not, you need to be comfortable with the weightings being this large in order to invest. Sector Composition and Weightings EWH's sector allocation leans heavily towards Real Estate Management & Development, as well as Insurance, with those two making up nearly 40% of the fund. Herein lies the contrarian trade. China's real estate problems are well documented and on-going. A bet on EWH is a bet on some stabilization and recovery there. Candidly, that's not a bad bet in my view.   ishares.com Peer Comparison: How EWH Stacks Up Against Similar ETFs Compared to the Franklin Templeton's FTSE Hong Kong ETF (FLHK), EWH is more established and offers better liquidity. FLHK is down less than EWH, with a smaller waiting to AIA Group (around 17%) and more spread out diversified mix.   stockcharts.com Pros and Cons of Investing in EWH Pros:  Single Country Exposure: EWH provides targeted exposure to the Hong Kong stock market, making it a useful tool for investors wanting to express a single country view. Diversification: Despite its focus on a single country, EWH offers diversification benefits as it invests in various sectors within Hong Kong. Potential for High Returns: If the Hong Kong market performs well, investors in EWH could potentially enjoy high returns.  Cons:  Market Risk: Given its focus on a single country, EWH is exposed to the market risk associated with the Hong Kong market. Any downturn in the Hong Kong market could negatively affect the ETF’s performance. Currency Risk: As the ETF's investments are denominated in Hong Kong dollars, investors are exposed to currency risk. Any significant fluctuations in the exchange rate between the Hong Kong dollar and the U.S. dollar could impact the ETF’s returns. Sector Concentration: EWH has significant exposure to the financials and real estate sectors. Any further downturn in these sectors could adversely affect the ETF’s performance.  Conclusion: Is EWH a Good Investment? Investing in the iShares MSCI Hong Kong ETF can be seen as a contrarian play. While the ETF has experienced a few challenging years, it could potentially offer high returns if the Hong Kong market rebounds. However, investors need to be aware of the risks involved, including market risk, currency risk, and sector concentration risk.  Overall, cautious optimism may be the best approach when considering an investment in EWH. Good fund, and good contrarian trade here in my view.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2423110734"}