iShares MSCI Hong Kong Index Fund (ETF) (EWH)

Hong Kong has always had a special place in Asia because of its heritage and geographical position. If this was due to the special territory status awarded to the region as a result of the pact reached between China and British, now it’s because of the country’s proximity to the world’s fastest growing economy i.e. China.

ishares MSCI Hong Kong Index Fund (EWH) invests primarily in companies listed in Hong Kong stock exchange with a view to capture 85% of the total available market capitalization. The fund is heavily biased towards real estate management and development company and commercial bank stocks, with sectorial contribution reaching 32% and 13.5% respectively. The fund is well diversified with 43 stocks, largest of them accounting only for 9.5% of total assets.

Among all countries in the world, Hong Kong has the largest revenue contribution coming from service sector at 90%. The area is the financial as well as the trade and logistic hub of Asia, and is a gateway for firms interested to get into mainland China. Real estate management and development securities on an average returned roughly 30% last year with the figure expected to touch 50% by end of 2007. Rising demand for apartments and office space, expected high off take of rent in 2007 after an increase of 28% in 2006 are all factors, which lead to this stock price rise.

Endorsing the same, commercial banks are having a field day with most of them cashing in on the booming mortgage market that is accompanying the real estate growth. Most of the publicly listed banks had a successful year as net interest income on an average grew by 16.8%. The loan market is slate to grow by 7%, continuing from where it left the previous year.

These factors provides a bright outlook for the real estate management companies and commercial banks, and with 45.5% of the total assets deployed in these segments the fund seems to be on the way to replicate its stupendous performance, it achieved last fiscal.