One play he points out that I did not present was the iShares FTSE/Xinhau China 25 ETF (FXI) - this index has had a monster year, but since it owns H-shares (Hong Kong version of the A shares), it could present a similar opportunity or perhaps an even more focused approach to my thinking about going long iShares Hong Kong (EWH).
To put in perspective, today FXI as I write this is up nearly 7%, while EWH is only up 1% (being a far broader index) - so EWH is more of the long term play on the inflow of money that will be coming into the Hong Kong market, while FXI is a play on the 25-30 stocks with listings in both countries and their near term dislocation in values between A shares and H shares.
What's in FXI? See here.
Now if we could only short the A shares, will going long the H shares - money could be made on both sides...
The blog entry also pointed out that "Greater China" (China, Hong Kong and Taiwan) now sports a larger market capitalization than Japan. Considering Japan is the 2nd largest economy in the world, that is quite amazing. But Japan has been flat this year whereas the A shares of China are up over 100%.
Matt also linked to a post by Heather Bell, which I concur with 100% - that the domestic A shares are in a massive bubble. She does a great job of explaining this situation with the A vs H shares which perhaps I glossed over to readers in my haste to describe the investing play.
She wrote:
In an effort to attract foreign investment, many companies domiciled in mainland China list shares on the Hong Kong Stock Exchange. Those shares are known as "H" shares, and foreign investors can freely trade these stocks. Meanwhile, domestic investors are allowed to invest in "A" shares, which foreign investors cannot trade unless they are an institution licensed by the Chinese government. It is not uncommon for a company to have both A and H shares listed.
Because the shares trade completely separately, pricing spreads can be significant. It's almost as if the two share classes are trading in parallel universes, with supply and demand driving prices, much moreso than fundamental analysis. With the recent surge in mainland China's economy in the year or so, the spreads between the two share classes have grown to epic proportions, with the prices of the A shares far outstripping those of the H shares.
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With FXI ramping so hard lately I will look for a lower entry point in the future...
p.s. Seeking Alpha has a brand new design that looks great!
Long EWH in fund; no personal positions
