HK ETF bulls unfazed by political unrest

[NEW YORK] Investors in exchange-traded funds (ETFs) tracking Hong Kong-listed stocks are unfazed by the city's biggest political unrest since the 1960s, adding money even as the stock market posted its largest drop in seven months.

Since pro-democracy protests escalated on Sept 28, traders have put more than US$200 million into the six largest ETFs focused on Hong Kong and mainland Chinese companies listed in the city, according to data compiled by Bloomberg. Short-sellers cut bets on price declines by an average 16 per cent as the Hang Seng Index fell 2.6 per cent last week, the most since March.

While the ETF inflows constitute a small portion of trading on the Hong Kong exchange, they signal that investors who make market-wide calls are confident that stocks will rebound after valuations fell to a 26 per cent discount against their decade average. Just 13 per cent of companies in the Hang Seng gauge get a majority of their sales from Hong Kong, where protests disrupted one of the busiest shopping seasons of the year. Firms focused on China make up more than half the measure.