Hong Kong ETF: Gearing Up for a Correction?

| About: iShares MSCI (EWH)

It’s not just in the United States that some are worrying about a potential market and ETF pullback. Some analysts are warning of a correction ahead as Hong Kong’s stock market hovers around its highest point in more than a year.

The global economic recovery is not yet a firm one, and any poor data from the United States or China might prompt Hong Kong’s investors to forgo risk in favor of safety, remarks Roland Lim for channelnewsasia. Alex Wong, director of Ample Capital, estimates that a 30% correction could occur if there is a flight to safety.

Hong Kong’s Hang Seng Index has jumped about 50% year-to-date, and the index constituents are trading at 18 times price earnings. The 20-year average is 14 to 15 times. According to a study conducted by JP Morgan (NYSE: JPM) Asset Management, around 60% of participants believe the local stock market is still volatile.

Hong Kong Chief Executive Donald Tsang may set out plans to develop additional industries to help Hong Kong diversify from its two major industries, finance and trade, reports Sophie Leung for Bloomberg. New industries could include medical services, education, cultural and creative industries, environmental protection, innovative science and technology, and inspection and certification.

If a market correction occurs in Hong Kong, be sure to have an exit strategy to protect yourself on the downside. The ETF Trend Following Playbook has more on ETF strategy.

  • iShares MSCI Hong Kong Index (NYSEArca: EWH): up 59.1% year-to-date


Max Chen contributed to this article.