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Investing in Hong Kong Stock Market instead of China

Stock-Markets / Hong Kong Jul 04, 2007 - 02:07 PM GMT

By: Money_and_Markets


Tony Sagami writes: Celebrating China in Hong Kong - Although we're just getting ready to fire up our grills and shoot off our fireworks here in the U.S., there was a huge celebration in Hong Kong two nights ago. The occasion? The tenth anniversary of the handover of Hong Kong to Chinese rule. It was a day of elaborate festivities, including a visit from Chinese President Hu Jintao.

The Chinese dubbed the ceremonies the "Celebration of the 10th Anniversary of Hong Kong's Return to the Glorious Motherland." But the most widely used title is " Chat Yat ," which is Cantonese for 7/1.

Today, I want to tell you how Chinese rule has affected Hong Kong. And I'll also tell you how you can celebrate China's tremendous growth by investing in Hong Kong …

With Chinese Rule, Came Big Changes in Hong Kong

Hong Kong's two primary languages used to be English and Cantonese, but Mandarin is now widely spoken. More than half a million mainland Chinese have moved into Hong Kong since the handover, and roughly 14 million more visit every year. Hong Kong now has the world's lowest fertility rates and the highest life-expectancy.

However, the biggest changes from China's involvement have been economic and despite a rocky start, are quite contrary to the dire predictions of 10 years ago that Chinese rule would ruin the vibrant Hong Kong economy …

The decade got off to a rocky start from the Asian financial crisis that required International Monetary Fund bailouts — the Hong Kong stock market tumbled 60%, unemployment tripled to 6%, homes lost half of their value, and there was an outbreak of severe acute respiratory syndrome (SARS).

To make matters worse, Hong Kong lost its spot as the busiest port in the world to Singapore. It was even overtaken by Shanghai and Shenzhen (across the Hong Kong border) as far as China's busiest ports.

Since then, the Hong Kong economy has regained its footing. In fact, it's now one of the strongest economies in the world. Take a look:

  • Hong Kong's Gross Domestic Product expanded by 6.8% in 2006.
  • Hong Kong overtook the U.S. for IPO issuance when it floated $43 billion worth of IPOs last year. It is now the second most popular stock market in the world for companies going public.
  • You hear a lot about China's $1.3 trillion in foreign reserves, but Hong Kong is no slouch, either. Its foreign reserves are worth $133 billion, giving it one of the largest budget surpluses in the world.
  • Hong Kong's hotel occupancy rates are consistently at 90%, up from 75% in 1997. Reason: Hong Kong has solidified its role as the financial gateway to China.
  • In 1997, only 13% of the stocks listed on the Hong Kong Stock Exchange were based in mainland China. Today, the number is almost 50%. And the total value of the Hong Kong stock market has skyrocketed by 300% in the last 10 years.

Clearly, Hong Kong is an important, effective, and very profitable way to participate in the booming Chinese economy.

In fact, thanks to a dramatic policy change from the China Securities Regulatory Commission (CSRC), I think the Hong Kong market is now on the launching pad and about to skyrocket.

As I first explained in " New Investing Boom in Hong Kong ", the CSRC recently issued a sweeping change that will permit Chinese institutional investors — banks, insurance companies, and mutual funds — to invest billions in the Hong Kong stock market. By permitting these so-called Qualified Domestic Institutional Investors (QDIIs) to invest in foreign markets, the CSRC hopes to lighten some of the pressure from mainland China's stocks and gently deflate some of the excessive speculation.

Investors who take advantage of this monumental opportunity stand to reap amazing profits!

And here's perhaps the best reason of all to take a long, hard look at Hong Kong's stocks: The average P/E is a bargain 16 times earnings. As I see it, that makes the market one of the very best bangs for the growth buck of any country in the world.

Four Ways to Invest in China through Hong Kong …

First, you can buy Hong Kong-listed stocks. There are hundreds of Chinese stocks listed on the Hong Kong stock exchange. And I suspect these familiar names will be the target of QDII funds.

Buying foreign-listed stocks used to be difficult and expensive … but not any more! Today, buying foreign-listed stocks is no more difficult than buying IBM or General Electric. E-trade, for example, recently started offering $21.95 trades on six foreign exchanges, one of which is Hong Kong.

That's right! You can buy and sell Hong Kong stocks from the comfort of your home for only $21.95 a trade. So, whatever inhibitions you may have about investing overseas are simply not valid.

As a side note, perhaps the purest way to profit from a Hong Kong boom is by investing in the Hong Kong Stock Exchange itself (symbol 0388.HK).

Second, you can buy Hong Kong ETFs. If you're more of an ETF investor, you should consider either iShares MSCI Hong Kong Index (EWH) or PowerShares Golden Dragon Halter USX China Index (PGJ). Both of these broad-based exchange-traded funds give you a stake in much of the sweetest part of Hong Kong's billion-dollar boom.

Third, you can buy Hong Kong mutual funds. There aren't any Hong Kong-only mutual funds that I know of, but there are some that are heavily weighted in Hong Kong's stocks. For example:

Fidelity Greater China invests principally in Hong Kong, China and Taiwan. Matthews China invests in Hong Kong as well as Shanghai and Shenzhen. Guinness Atkinson China & Hong Kong also invests in Hong Kong and mainland China. And U.S. Global Investors China Region Opportunity fund invests in Hong Kong, China, Singapore and Taiwan with a heavy emphasis on natural resource and hard-asset companies.

So, while Hong Kong's skies were filled with skyrockets and explosions the other night, the real fireworks could be in your portfolio if you spice it up with a little bit of Hong Kong's investment opportunities!

Fourth, you can go for double-your-money gains in #1, table-pounding Asia stock pick. For the details, see my article on this stock I just posted on the Web .

Best wishes,

By Tony Sagami

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01 Jul 09, 17:04
Hong Kong Stock Index

Dear Tony,

Being an expert in the Hong Kong market how do you see Hong Kong index in the second half of 2009. please advise.

thanks so much.


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