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Don Dion's Weekly ETF Blog Wrap

Here is some of what Don Dion blogged about on RealMoney this past week.

Hong Kong's Bubble Fears

Posted 12/29/2009 3:11 PM EST

The iShares MSCI Hong Kong Index Fund (EWH) has gained nearly 50% year to date through Dec. 28. While 2009 has been a profitable year for the fund, investors holding the instrument into 2010 should be prepared for what could be a rocky ride.

This week, Hong Kong Chief Executive Donald Tsang admitted he has grown a bit pessimistic on the city's economy. He warned of a strong possibility Hong Kong could see a double-dip recession in the middle of next year.

The city's government also has become increasingly concerned that ballooning real-estate prices are creating another asset bubble. Though housing prices have gained 30%, developers have adamantly turned aside the government's bubble fears. But in the end, such concerns appear to be affecting the sector. In November, new mortgage-loan approvals dropped by more than 11%, marking the fifth consecutive monthly decline.

EWH currently holds over 60% of its assets in the Hong Kong financial sector. This slice includes a number of property developers. Three of the fund's top holdings include: Sun Hung Kai Properties, Hutchison Whampoa, and Cheung Kong Holdings, which account for nearly 23% of the total portfolio. A steep dip in Hong Kong's real-estate sector will hurt these firms, dragging the fund along with it.

In the three months through Dec. 28, Hutchison Whampoa has been a drag on EWH. In this period, EWH gained 2%, while Hutchison Whampoa plunged nearly 10%; Sun Hung Kai gained 4%, and Cheung Kong gained 2%.

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