Hong Kong ETF Doesn't Target China Themes

HONG KONG (TheStreet) -- After I wrote about investing in China last week, a reader asked why there was no mention of the iShares MSCI Hong Kong Index Fund(EWH Quote). I probably should have included it.

The Hong Kong fund, which has been trading since 1996, has had the China space to itself for many years, even though it's a proxy for the Hang Seng Index. Hong Kong's benchmark looks a lot different than China's Shanghai Composite Index, as you can see in the chart below.

The Shanghai Composite versus the iShares Hong Kong ETF Yahoo Finance

In the article, I expressed reservations about China ETFs that invest heavily in financial stocks. Most emerging markets have at least a couple of large banks and they tend to feature very prominently in the benchmark indices that underlie the funds.

The Hong Kong ETF is actually heavier in financials at 62% than the funds profiled last week. Six of the top 10 holdings are tied to real estate or finance, and account for 37% of the fund.

Hong Kong Exchanges & Clearing is the fund's third-largest holding with 7.85% of the fund. Its American counterpart, NYSE Euronext(NYX Quote), has a 0.08% weighting in the S&P 500 Index. NYSE shares have the same weighting as HCP(HCP Quote). Have you ever heard of HCP? I haven't.

Some of the real estate companies in the Hong Kong ETF have been wildly volatile like Sun Hung Kai Properties, the fund's largest holding at 8.7%, and Hang Lung Properties. Other holdings have tracked closely to its index.

If you're considering buying property stocks to add volatility to your portfolio, why would you want to exacerbate price swings by also adding emerging market exposure? And why would you make such a move when there are other promising stocks beyond financials in China?