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 (NYSEARCA: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 % 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.