Investing in Hong Kong-based funds and companies can be one way of tapping into China and according to one global investment advisor, now might be the time to do so.
Investing in Hong Kong is not only a gateway to China, but the whole region. “Hong Kong has served as a trade hub for centuries and that’s a role that continues today,” said Keith Fitz-Gerald, chief investment strategist of Money Map Press.
Fitz-Gerald says investors who want to invest in the region rather than pick a specific company, can easily buy shares of exchange-traded funds, or ETFs, which trade like shares of stock.
He recommends Morgan Stanley China A Share Fund (NYSE:CAF) because it’s more than 20 percent below its 52-week high of $29.95 set last April in response to signs of a slowing Chinese economy, and has rebounded from the 52-week low of $18.64 at the end of December.
“Traders are running the other way, which means its beaten down, unloved and has potentially more upside,” explained Fitz-Gerald.
The steady, albeit slow, recovery of the U.S. consumer means opportunity for investment in Hong Kong. As consumers regain confidence, U.S. retailers will need to replenish inventories to keep shelves stocked.
Li & Fung Limited (HKG:0494) is a toy and clothing supplier that books 65 percent of its revenue from the U.S., according to Fitz-Gerald and has begun to rebound in 2012 from a bruising sell-off in 2011.
Another sector on Fitz-Gerald’s radar is international gambling, which continues to be a “highly contested and very lucrative market”, said Fitz-Gerald.
He pointed to Galaxy Entertainment Group Limited (HKG:0027), which operates casinos in Macau and is up 42 percent year-to-date.
There are of course many risks associated with investing in Hong Kong, and Fitz-Gerald specifically cited developers in the over-built commercial real estate sector, and banks that fund developers, as the main pitfall for international investors.
“Both are exceptionally problematic unless you have a cast iron stomach for volatility.”