The China and Hong Kong stock markets are having a difficult time this year.
The bear markets there have lasted for almost two years and no one knows if the worst is over.
The Hang Seng Index (HSI) touched its 1997 handover levels of around 15,000, but has rebounded recently to close at around the 20,000 level.
Sad to say, It has come almost a full circle after a quarter of a century.
If you are a contrarian investor and enjoy looking for bargains,, you may consider buying one or more of the ETFs listed below.
A note of caution, though.
You should consider the risks carefully and prepare to hold them for years if need be.
1. The Tracker Fund of Hong Kong (HKSE: 2800)
When the Hong Kong Dollar (HKD) and stock market were under immense attack from speculators during the Asian Financial Crisis, the Hong Kong government made an unprecedented move to buy up many stocks.
The portfolio of stocks they bought in 1998 was the predecessor of The Tracker Fund of Hong Kong.
Today, the Tracker Fund tracks the Hang Seng Index (HSI).
Since its inception in 1969, HSI has had 33 or fewer constituents, with HSBC (HKSE: 0005, LON: HSBA) as one of its largest components.
For many years, the storied bank was popular with many Hong Kongers as its loyal and long term investors.
In 2021, the manager of HSI announced its biggest revamp yet – the plan was to increase the constituents quarterly, to eventually bring the total number to 100.
Currently, there are over 70 constituents.
Over the past decade, the proportion of Chinese companies has increased at the expense of Hong Kong companies in the HSI.
Right now, three of the top five companies are Chinese companies: Tencent (HKSE: 0700), Alibaba (HKSE: 9988) and Meituan (HKSE: 3690).
2. ChinaAMC CSI 300 Index ETF (HKSE: 3188)
This ETF follows the CSI 300 Index which is a market capitalization-weighted index.
It covers the top 300 companies listed in both the Shanghai Stock Exchange and Shenzhen Stock Exchange.
This China stock market index is equivalent to the S&P 500 Index in the US and is widely followed by both institutional and retail investors.
The top holdings of this ETF include Kweichow Moutai (SHA: 600519), Ping An Insurance (SHA: 601318), BYD (SHE: 002594) and China Merchants Bank (SHA: 600036).
3. Hang Seng China Enterprises Index ETF (HKSE: 2828)
The Hang Seng China Enterprises Index (HSCEI) reflects the overall performance of China companies listed in Hong Kong.
Just like the HSI, there is a maximum cap of 8% for any company to avoid single stock concentration.
The top holdings for this ETF include Meituan, Tencent, Alibaba, China Construction Bank (SHA: 601939) and China Mobile (SHA: 600941).
4. CSOP Hang Seng Tech Index ETF (HKSE: 3033)
Hang Seng Tech Index is the newest index among the five listed in this article.
It was launched just two years ago in 2020.
It consists of 30 largest technology companies listed in Hong Kong.
Some of its holdings include Xiaomi (SEHK: 1810), Sunny Optical (HKSE: 2382) and JD Health International (HKSE: 6618).
It has been on a roller-coaster ride since its inception: rising to 11,000 in February 2021 and crashing to below 3000 in October 2022.
5. CSOP SZSE ChiNext ETF (HKSE: 3147)
In October 2009, ChiNext Index was launched on the ShenZhen Stock Exchange (SZSE) with 28 companies.
This index is considered by some to be the Nasdaq of China, comprising many fast-growing technology companies.
Just like Hang Seng Tech Index, ChiNext Index is volatile and not for the faint-hearted.
Ironically, if you prefer an ETF with exposure to only Hong Kong companies, you’ll have to look at iShares MSCI Hong Kong ETF (NYSEARCA: EWH) listed in the US.
Some familiar Hong Kong companies in this ETF include AIA Group (HKSE: 1299), Hong Kong Exchange (HKSE: 0388), CK Hutchison (HKSE: 0001), Link REIT (HKSE: 0823) and MTR Corp (HKSE: 0066).
Over the past year, some of my Singaproean friends ventured into the Hong Kong stock market for the first time.
All of them bought Alibaba’s (HKSE: 9988) stock.
Instead of a single stock, they could have bought the Hang Seng Tech Index ETF with Alibaba as one of its top holdings.
While we can’t be sure if the return of this ETF is better than Alibaba in the future, the risk is undoubtedly a lot lower.
While Alibaba is a big and profitable company, it will never be safer than a basket of 30 companies.
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Disclosure: The author owns the Tracker Fund of Hong Kong, the Hang Seng China Entepries ETF, and the CSOP SZSE ChiNext ETF.