Top Chinese Fund Is Betting Heavily On Hong Kong Stocks

One of the world’s top-performing foreign equity funds is putting nearly all of its eggs into one basket this year.

That fund is China-based Harvest Fund Management, led by Zhang Jintao, and that basket is filled with Hong Kong-based equities. That’s the best region to focus on this year, the firm told Bloomberg today:

Harvest Fund Management Co.’s fund has returned 13.7 percent this year after putting 70 percent of its stock holdings in the former British colony, where the local benchmark has jumped 9.6 percent. With the market now near a 1 1/2-year high, Zhang says the rally can continue as earnings improve and China’s economy stabilizes.

The reasons behind Hong Kong’s rise are numerous, according to Harvest, and include favorable currency effects, low global interest rates, and an improving Chinese economy:

“The yuan is stable, the U.S. has paused its rate hikes and the entire Chinese macro environment is better,” Zhang said in an interview on Tuesday. “There’s more upside because earnings growth will be better than in 2016. Valuations will rise.”

Harvest’s solid performance is leading to massive inflows, with its assets more than doubling so far in 2017 alone. And there’s more upside ahead, Zhang believes, as there’s still plenty of money waiting to be put to work.

U.S.-based investors looking to capitalize on Hong Kong’s growth should consult the iShares MSCI Hong Kong Index Fund ETF (NYSE:EWH), which was trading at $21.69 per share on Thursday afternoon, up $0.12 (+0.56%). Year-to-date, EWH has gained 11.34%, versus a 5.77% rise in the benchmark S&P 500 index during the same period.

EWH currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #11 of 80 ETFs in the Asia Pacific Equities Ex-China ETFs category.

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