Traineeinvestor

A question on oil. There are different grades of oil - WTI and Brent being the two best known crude oil benchmarks. Looking at Iron Ore, over the last several years, the price gap between low grade IO fines, higher grade IO fines and IO pellets has expanded significantly in response to demand for the higher quality products (especially the IO pellets) which produce much lower levels of pollution. The question I have is whether we will see a similar widening of the price spread between the prices for lower grade/higher polluting crude oil and the higher grade/lower polluting crude oil. There is already some differential (see WTI v Brent prices), but with changes like those the shipping industry is currently going through, I'm wondering (i) whether the existing price differentials will widen and (ii) if so, which companies stand to benefit most. My search to match oil companies against the quality of their crude oil reserves has, so far, proved to be an exercise in frustration.

Then again - just out today the latest numbers show a whopping 0.07% increase in the CCL last week: http://www.aastocks.com/en/stocks/news/aafn-content/NOW.916475/top-news I know, its not meaningful, but it does help to stir the pot.

The larger HK property developers like Henderson, SHK, CKA, NWD and HLP are all selling at around 50% (or more) discount to NAV. Given that they have rock solid balance sheets, they seem to be pricing in a major decline in HK property prices and/or commercial rents. I've added a few more CKA (HK:1113) to the portfolio.

A selection of 2019 gold price predictions from nine major financial institutions (all worth exactly what you pay for them): https://goldsilver.com/blog/2019-gold-price-forecasts-and-predictions-from-the-big-investment-banks/ Predicted average prices for 2019 range from $1,292 to $1500 with an average of the averages coming in at $1,342 which is only around 7.5% above the price at the time of writing this ($1,249).

Thanks - I will contact them.

Thanks - I know they used to offer a limited range through their head office branch but there is no mention of physical precious metals services on their website. Do you know if they still have this service? And do I need to open a bank account with them? BOCHK still offers a limited range of coins and bars and have always been painless to deal with. Kitco and LPM have a wider range of products but I have never dealt with either.

Does anyone have any experience in buying bullion from Kitco in Hong Kong? Thanks in advance.

That sounds quite interesting. Growing cash flows are wonderful things. I generally prefer to buy the parent company in a group as well.

FWIW, HSBC has a target of $24.70 on HLP (HK:101).

87001 offers an 8.4% dividend yield (tax free for HK residents). It may not have the growth potential of 101, but it's a great income generator and offers a DRP for those who like to reinvest and see their returns compound over time.

FWIW, HSBC has a price target of HKD26.70 on Hang Lung Properties. That's quite a decent upside from present levels.

Actually, given the high transaction costs in HK (stamp duty, legal fees, agency), outgoings (management fees, rates), possible fit out costs and holding costs (mortgage payments) (less actual or implied rent of course), I'd say it is very possible to lose money even if the underlying property price does increase. If you were in the position of paying double stamp duty (15%), you would need prices to increase by at least that amount to have any chance of breaking even. Agree that the test will be the falling market and I suspect that the next down turn may be a bit different from the last one because: 1. the banks have less direct risk exposure due to the higher LTV requirements 2. the banks' indirect exposure through lending to developers who on lend to buyers is (IMHO) relatively low risk because most of the HK property developers have very strong balance sheets are are themselves well able to survive a big fall in property prices. They will feel the pain of losses but will survive 3. the number of non-residents owning property in HK is (I believe) much higher than last time. Intuitively, I would expect non-residents to be more willing to walk away from their obligations resulting in more mortgagee sales 4. if things get bad, the HKSAR govt can remove some or all of the cooling measures.

I don't know whether to utter a Homer Simponesque "Duh" at the fact that rapidly rising property prices result in zero negative equity cases in Hong Kong or cringe at the appalling journalism that produced a headline and an entire article that conveniently demotes to the last paragraph the inconvenient fact that the claim that there are zero negative equity cases in HK excludes developer second mortgages up to 120 percent of property value. In either case it says more about shoddy journalism than the HK property market. https://www.bloomberg.com/news/articles/2018-02-01/hong-kong-homeowners-have-zero-negative-equity-as-prices-soar

Nothing particularly new here but its a good summary of expected supply and demand for 2017: https://www.platinuminvestment.com/files/224537/WPIC%20Presentation%20-%20PQ%20Q1%202017.pdf For me the most interesting question is why demand in various categories is, in aggregate, forecast to fall this year?

Deutsche Bank continues with its bearish predictions on the HK property market - basic expectation is that property prices will halve over the next ten years http://www.scmp.com/property/hong-kong-china/article/2097546/hong-kong-home-prices-seen-falling-half-10-years-says#comments They may well be right (or not), but as is mentioned in some of the comments, Deutsche Bank's track record on this subject is poor. And mine isn't much better - I've been saying that HK property is too expensive to represent good value for a few years now, and it's kept going up. Fortunately, I didn't sell but as things stand right now, the double stamp duty is a huge impediment to cashing out.

An interesting article on the demand for physical safe storage facilities for bullion and other hard assets: https://www.bloomberg.com/news/articles/2017-06-06/the-new-gold-rush-is-all-about-vaults Interesting that the holding costs for physical storage are claimed to be lower than holding through a physically backed ETF. Transaction costs will be a lot higher, but still ....

I found this thread on goldismoney suggesting that, compared to silver and platinum, gold is getting really expensive: http://www.goldismoney2.com/threads/compared-to-silver-and-platinum-gold-is-getting-really-expensive.143687/

HK mortgagee values up again - new all time highs for our properties. Right now its kind of hard not to wish I had purchased another property before the "cooling measures" were introduced.

The continued rise in prices does not surprise me at all. There is a combination of factors driving the market: 1. a cash rich economy and populace (see HKMA data) 2. very low unemployment and high job security among the middle/upper income groups (lower income groups have access to publicly subsidised flats) 3. the government cooling measures acting as a massive deterrent to selling in the secondary market 4. low interest rates (around 2.25% for a new mortgage with legacy mortgages around 1.2% after the rate hike) 5. very limited use of revolving or interest only facilities in residential lending + high LTV ratios mean there are a lot of owners with either very low or nil mortgage balance 6. cash still coming in from China I have no plans to sell any of our properties. I'm happy to let the rents come in, watch the mortgages slowly amortise and hope that some buying opportunities come up in a few year's time when the mortgage on our home is paid off. I don't know how much further prices have to run, but it is nice to see the developers playing catch up with the market.

Not sure if the formatting will show when I put it in the next post, but I did a high-level comparison of 5 established HK property stocks Hang Lung (101), CK Property (1113), Henderson (12), K Wah (173) and New World (17). As expected, the discounts to NAV have widened with the recent downward movements in share prices. However, the interesting thing for me is that the two companies in this group with moderate net debt level (K Wah (25% net debt) and New World (44% net debt) are trading at much higher discounts to NAV (54% and 57% respectively ) than the two companies with close to zero net debt (Hang Lung Property and CK Property - both around 2% net debt and 43% and 31% discount to NAV respectively ). Henderson sits somewhere in the middle. Obviously, these are not "apples to apples" comparisons - K Wah has a substantial non-property asset through its shareholding in Galaxy (27), New World has its hotel interests and investment in NWS (659) etc etc but, at the moment, the better value seems to be with the more highly geared companies. As an aside, the Galaxy share price is currently ahead of where it was at the half year mark adding about HK$1.5 billion to the NAV increasing the discount to NAV to around 58%. Similar adjustments can be made for some of the other companies as well.

The buying opportunities in 2002-4 were fantastic. You could buy decent properties on the secondary market with 30% down, old rates of stamp duty and the mortgage payments (P+I) and rates would be less than the cost of renting. Even better, developers were offering second mortgages for 20-25% of the purchase price payment free for, in some cases, up to 4 years. p.s. IIRC it was SARS not AIDS that marked the low point in the market.

Well, they got quite a bit closer to their lows today Getting tempting - especially NWD (HK:17) which offers a trailing yield of around 5% which I think is fairly secure.

Good advice as always. HK property companies are (in general) cheaper than HK property (discount to NAV and better yields) and come without the punitive stamp duty but, as a group, they are some distance from their lows.

Apologies - my comment was definitely not directed at you but at some of the permabears who persistently predict the imminent end of the financial universe for many years as the markets kept climbing. A low in 2020/2021 combined with a removal of the double stamp duty would be very nice timing for me - two of my mortgages will be fully paid off around then giving me capacity to borrow and buy again. HKSAR govt just raised the stamp duty rate to 15% One effect is that people like me will never sell - they just made it too hard to buy back in.

I'm not sure which areas are experiencing the biggest declines, but I just checked the mortgage valuations for my properties (in Mid-Levels) against the all time highs, and found the biggest decline was about 4%. A check of recent sales (as reported) suggests that the mortgage valuations are fairly close to market. However, the real estate agents' windows are full of notices for units which have been discounted by much bigger amounts - presumably they increased the original asking price to fantasy levels and then discounted to more realistic levels in an attempt to lure in buyers. Rents aren't moving much (yet).