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The Hong Kong stock market has been rallying, continuing an uptrend that finished off 2012 strong. The iShares MSCI Hong Kong Index (NYSEARCA:EWH) is an exchange traded fund that exposes a portfolio to this market, and provides exposure to banks, utilities and property companies.

"This fund tracks the MSCI Hong Kong Index, which is different from the often-cited Hang Seng Index. The Hang Seng Index, which includes the largest and most liquid stocks on the Main Board of the Stock Exchange of Hong Kong, has about a 50% weighting in Hong Kong companies (which includes global banking giant HSBC Holdings PLC HBC), and a 50% weighting in Mainland Chinese companies (which includes Red Chips and H-Shares). The MSCI Hong Kong Index only includes Hong Kong-based companies, and does not include HSBC, which is headquartered in London," Patricia Oey wrote for a Morningstar analyst report.

Hong Kong's economy has been in recovery mode ever since the recession that hit in the second half of 2011. 2012 was a knockout year for the Hang Seng Index, as it returned about 20% by the end of December. The Hang Seng Index has trended up 4.37% in 2013. After Hong Kong's integration with China, the economy is ready to rally again in 2013, thanks to Chinese reforms that will be set into motion by the end of this quarter.

Financial reform that will help support further direct foreign investment in Hong Kong include the allowance of minimal government intervention, lower taxation and a business-friendly regulatory climate, reports Eric Dutram for Zacks.

EWH is a way to capture Hong Kong's economic growth, however, the ETF ends up giving plenty of exposure to China. Many macroeconmic trends in Hong Kong are influenced by China. Many Hong Kong firms also have offices in China, for example, property and real estate companies. Furthermore, banking stocks are seeing growth in the renminbi business, thanks to recent liberalization measures affecting both the yuan exchange rate and cross-border banking services, reports Oey.

EWH is the largest Hong Kong focused ETF, with $3.1 billion in assets. The financial sector has the largest weighting at 62%, and it is important to note that the country is the most competitive business and financial center on the globe. A 2.52% dividend yield is also a nice addition.

Other Hong Kong-focused ETFs:

  • Hong Kong AlphaDEX Fund (NASDAQ:FHK)
  • iShares MSCI Hong Kong Small Cap Index (NYSEARCA:EWHS)

iShares MSCI Hong Kong Index

(click to enlarge)

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Hong Kong ETFs Continue Uptrend