Hong Kong has endured three months of protests that aimed to withdraw a bill that would allow local authorities to detain and deport people wanted in territories that the former British colony does not have extradition agreements with, including mainland China and Taiwan. Protesters argued that the controversial bill undermined the autonomy of the region and citizens' rights and freedoms.
The city's embattled leader Carrie Lam finally agreed to withdraw the bill on Wednesday but refused to give in to other demands requested by the protesters, including greater democracy for the city and an independent commission into police conduct. As the news broke, Hong Kong's most-watched stock index, the Hang Seng, surged more than 4% to pare some of last month's steep losses.
The move to withdraw the bill is "certainly very positive" for Hong Kong equities, Jeffrey Halley, a senior market analyst at OANDA, told Al Jazeera.
Those who want to play for the relief rally in Hong Kong markets to continue can gain exposure to the financial hub's stocks using these three exchange-traded funds (ETFs). Let's take a closer look at the metrics of each fund and explore several tactical trading plays.
iShares MSCI Hong Kong ETF (EWH)
Launched back in 1996 – one year before Britain formally handed back Hong Kong to China – the iShares MSCI Hong Kong ETF (EWH) aims to provide returns similar to the MSCI Hong Kong Index. The $2 billion fund covers 85% of the Hong Kong market, with a heavy tilt toward the financial sector. Top allocations in the ETF's portfolio of roughly 50 holdings include life insurance giant AIA Group Limited (AAGIY) at 23.73%, Hong Kong Exchanges and Clearing Limited (HKXCF) at 7.42%, and Link Real Estate Investment Trust (LKREF) at 4.83%. The fund's tight 0.04% average spread and daily turnover of more than 6 million shares provide excellent tradability. As of Sept. 5, 2019, EWH yields 2.87%, charges a middling 0.48% management fee, and is up 4.89% year to date (YTD). The ETF has tumbled nearly 9% over the past month amid escalating protests.
EWH's share price has trended mostly lower since forming a double top over April and May. Throughout August, the price created a diamond bottoming pattern near an area of support at $22. The fund staged a 4.50% breakout on above-average volume in yesterday's trading session on news of the extradition bill's withdrawal. Those who open a long position at these levels should look for a retest of crucial overhead resistance at $26.50. Implement risk management by placing a stop-loss order beneath the Sept. 3 low at $22.59 and moving it to the breakeven point if price crosses above the 200-day simple moving average (SMA).
iShares MSCI All Country Asia ex Japan ETF (AAXJ)
The iShares MSCI All Country Asia ex Japan ETF (AAXJ) seeks to track the performance of the MSCI AC Asia ex Japan Index – a benchmark that comprises stocks from both developed and emerging markets in Asia but excludes Japan. Hong Kong equities command the top county allocation, with a weighting of almost 40%. The fund, which has an expense ratio of 0.69%, takes a sizable bet on financials and technology, allocating 31.28% and 30.80% of its assets to those sectors, respectively. A minuscule 0.02% average spread and dollar volume liquidity of about $90 million most days make the ETF suitable for both scalping and swing trading strategies. AAXJ has net assets of $4.03 billion and is trading up 3.09% on the year as of Sept. 5, 2019. Investors also receive a 1.95% dividend yield.
AAXJ shares have oscillated within a descending channel over the past six months that has established clear support and resistance levels. The ETF's price broke above an area of consolidation at the pattern's midpoint in yesterday's session that could trigger a move up to the channel's top trendline just below $69. The relative strength index (RSI) shows a reading well beneath overbought levels, giving price ample room to run further before retracing. Traders who take an entry should keep a stop close to Wednesday's low at $65.86 to ensure a favorable risk/reward ratio.
iShares Asia 50 ETF (AIA)
With AUM of $1.08 billion, the iShares Asia 50 ETF (AIA) has a mission to deliver investment results that reflect the performance of the S&P Asia 50 Index. The benchmark is a market capitalization-weighted index designed to measure the performance of the 51 leading companies listed in four Asian countries or regions: Hong Kong, Singapore, South Korea, and Taiwan. Hong Kong accounts for the ETF's top country allocation at 56.14%. Two of the administrative region's leading companies – AIA Group and Hong Kong Exchanges and Clearing – sit among the fund's top 10 holdings. Liquidity can be thin at times, with about 35,000 shares changing hands per day, while the fund's average spread of 0.13% is reasonable in the international equity space. AIA pays a 2.44% dividend yield and has gained 3% YTD as of Sept. 5, 2019.
AIA shares rallied for the first four months of the year, printing a 52-week high at $63.93 on Apr. 17. Since then, the fund's price has traded within an orderly descending triangle, finding support at the pattern's lower trendline in mid-August. Wednesday's breakout above a period of two-week consolidation may lead to additional follow-through buying in subsequent sessions. Those who want to play for further upside should set a take-profit order near the channel's upper trendline and think about placing stops just below $57.