Posts Tagged Hong Kong
The financials market got off to a great start in 2013 as expected. Please refer the articles i have written in the past 3 months calling for this
The financial markets are likely to see a very strong year as equity risk premium for major economies such as EU, Japan, China, Hong Kong, South Korea are all over 10%. The fall in risk free rate plus the major compression of credit spread in 2012 has made equity markets one of the cheapest asset class out there. The other 2 asset class which could also perform well would be convertible bonds and high yield bonds as global default rate continue to fall on the back of quantitative easing.
Furthermore, in 2013 we are likely to see a repeat of 2003 and 1993 of which in 2003 the money that came out of the Nasdaq bubble fueled global risk assets including US subprime and asset backed markets which burst in 2007 . In 1993, the money that came out of post Japan bubble also fueled the markets in Asia ex Japan which resulted in the 1997 Asian Financial Crisis later on. I believe we are seeing a repeat here as globally central banks has embarked on massive quantitative easing and this year onwards the money is going to flow out of government bonds and money market funds to fueled risk assets especially those markets trading above historical risk premiums.
Stay tune for Part 3 of this article – as I analyze sectoral performance globally.
Domestic Chinese A-shares fell to 4-year low today, however many Chinese equities or China related equities listed overseas are rising in value. This include H-shares in Hong Kong as well as China related shares in US, Japan, Hong Kong and Singapore. How do we read into it? In my recent conversations with onshore and offshore investors, there seems to be a reverse in terms of their outlook this time around. Domestic investors are less convince on the performance of the equity market going forward due to the fact for the pass 4 years China has registered above 30% in accumulated growth and property prices have doubled but we have seen flat performance in its equity markets. Foreign investors on the other hand are beginning to turn bullish on Chinese equities and its currency on the back of cheaper valuation on a global comparison. It is therefore a very smart move by investors to purchase Chinese companies and China related companies listed overseas. By the act itself, investors are buying cheap call option on the performance of Chinese equities and currency in the medium term.
Global major economies are implementing quantitative easing in a scale never seen before in human history, is it necessary? Is it because global growth is sub-par compare to the last 5 decades? I believe it’s partly due to global aging population and with aging population sub-par growth would be inevitable unless we have a huge jump in productivity.
The question is what does it do to our money? I had a colleague which came back from an art auction today in Hong Kong and he told me investors were grabbing up art pieces at prices significantly higher than 6 months ago. Furthermore, it was reported in the media recently, average car park prices in prime locations in Central Hong Kong have risen to HKD5,000,000 ($630,000!). Why is this happening when more than half the global economies such as Europe/US/Japan are barely growing? This is because quantitative easing reduces opportunity cost of capital which inversely appreciates anything which has finite supply such as paintings and car parks?
What should one do facing such a tsunami of easing? Don’t go against it is what I would advise (for now!). For those that followed me, this has always been my advice for the last 4 years post Lehman. There are morale hazards that come with quantitative easing and money printing and leveraging up but is more debt bad when the growth is likely to remain low due to global ageing population? If you work your math it is not. Just look at yourself right now, if a bank said to you, “you can have more money, but you only need to make the same repayment” would you say no? You probably would if you know your repayment will rise one day. What I am telling you now is the “repayment or cost of money” probably won’t be rising anytime soon but meanwhile your food, property, clothing, child education, university tuition fees, watches, handbags, cosmetics and even paintings and car parks will continue to rise……
The current disparities between growth (+1.3%), deposit rates (zero!), inflation (5%) and property prices (20%) in Hong Kong its like watching a race between a hamster, tortoise, horse and cheetah! As mentioned in part 1 of this topic, the reason why there is inflation and upward pressure in monetary value of certain services and assets in Hong Kong is largely due to the demand from external factors. Similar to my analogy of Hong Kong resembling a shopping mall, most of the key products and services are targeted at serving/providing to foreigners (in a good way) The 3 key areas of growth for Hong Kong in this decade comes from the financial, property and luxury consumer sector which is largely targeted at foreigners (foreigner buying up luxury apartments, foreign companies raising IPO, foreign tourist buying up luxury products etc.)
Ok then you must be thinking what is different this time compare to 10 years ago? It is the HKD peg. Chinese Yuan and other Asian currencies have appreciated over 20% against HKD in the past 5 years and this trend is likely to continue with the quantitative easing in the west. The HKMA and Financial Secretary have denied the peg has brought about inflation? Look at 10 years Hong Kong Government Bond Yields 0.46%?! This is largely due to inflow of money and the result of increase in monetary base from defending the peg. 10 yrs yield at 0.46 while inflation is 10x of that??
Why are they in denial?They are just afraid to say it because given how well the peg has served Hong Kong, no one is going to change the peg, be it someone in HKMA, government or even the PBOC and the Chinese Government. One must also know this the HKD peg served as a good indicator for China on liquidity flow so why remove that….But something has to be done if we were to see a fairer race among the people in Hong Kong than the one we currently have. The peg can stay but for the sake of Hong Kong people who is reading, you should take your money out of the bank and move it into RMB, buy some equities or fixed income investments and last YOU mustn’t sell your property. If you don’t own a property in Hong Kong means you are short and the peg will kill you…If one decide not to do anything of such, they better make sure he/she gets a work in this mall or else you would be poorer even though the country continues to prosper….
Hong Kong announced on Friday its Gross Domestic Product grew 1.3% year-on-year in the third quarter, similar to the 1.2% growth seen in the second quarter. The data also unveiled the underlying consumer price inflation stands at 4% in the third quarter. Residential Flat prices from June to September rose by over 6% (in just 3 months!).
These data must look rather bizarre for general public as well as economists and financial professionals. Here is another observation, China Daily reported this “Hong Kong‘s Causeway Bay has dethroned New York‘s Fifth Avenue as the world‘s most expensive retail area, as luxury brands retailers such as Burberry, Salvatore Ferragamo and Gucci compete for limited prime space in the city to court big spenders, particularly mainland tourists.
The average annual rent at Causeway Bay, the prime retail district on Hong Kong Island, surged 34.9 percent to $2,630 per square foot at the end of June from a year ago, beating the $2,500 price tag of Fifth Avenue in New York‘s Manhattan district, which has occupied the top spot for 11 consecutive years, according to estimates by commercial real estate consultant Cushman & Wakefield Inc.”
So why is this happening? This is because the economy has become more dependent on China and Global Spending (just imagine Hong Kong as a large Shopping Mall) hence even though growth been rather weak, inflation continue to rise especially in areas which supply goods and services to this large global shopping mall. In this shopping mall, you have bankers that provide credits, salesperson to serve customers, lawyers to document/advise the process and doctors to cure those that gotten sick while shopping,
This is the state of the Hong Kong’s economy. It is debateable whether it is good or bad but one thing is for such we need a good mall management team (the government!) to guide the people of Hong Kong to equip themselves to work in this mall. No shopping mall survive without makeover and enhancement and quality control. It is time for the government to start working on these or else it would turn into an unloved mall with little patrons just like those malls in Hong Kong which none of us patronise anymore…
If you don’t like something, change it. If you can’t change it, change your attitude. Don’t complain
My son and wife gave me a quote today
“If you don’t like something, change it. If you can’t change it, change your attitude. Don’t complain” by Maya Angelou
This quote moved me right away – about the state of the society we live in currently, especially in Hong Kong….
Yesterday as I walked around Central, Hong Kong i got a sense that retail purchases by Chinese shoppers have started to picked up. There were various groups of tourist with bags full of luxury items purchased from shops such as Burberry, Prada, Chanel etc. This was not the case for the past six months. I gathered in recent months from friends and colleagues who have travelled globally for work, holiday and honeymoon! the sense is Chinese shoppers are travelling further away from China to shop. That would mean less shoppers are likely to flock to Hong Kong for their shopping spree. However, given my observation yesterday, I believe the Chinese demand has started to picked up in Mainland China, abroad as well as Hong Kong.
Today as i drove pass Sheung Wan, Hong Kong on the way back from hectic shopping in Wing On Departmental, I saw something rather normal yet touches my heart deeply. One lady was pushing a cart full of goods up a steep slope (a scene Hong Kong people are very familiar with). One will immediately feel a sense of pity or sadness towards the women having to push a cart up such a steep slope on a Sunday afternoon. Yet, she was full of smile as i drove pass…Why? her daughter was right beside her giving her a hand on pushing the cart and that pair of hands, of one she loves, means more than any wealth in the world. I shall learn from this lovely pair…