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Traineeinvestor's diary - HK and Far East Focus


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I sold the rest of my shares in Sinolink Holdings (HK:1168) yesterday at $1.01. While the shares are undervalued on any objective measure, given the HK market surge over the last few months, I decided it was time to take a bit of money off the table - at the end of the day, the market will always be smarter than I am.

 

Where to invest the money is the next question.

 

The US Dollar seems to have peaked.

Might it be time for Gold and Gold shares?

 

(here's a comment from a friend who writes a newsletter, and manages money):

 

Dear Reader,

SID has been a great trade up from 2.10 to near 2.70 as I write here today. I am going to take 500 or 1/4 of the position off here. Will look to add if the stock drops towards 2.40 or so. I think it will pullback shortly.

MM is looking very nice down here is up to 1.59. I love the big base this is doing.

As for the market trades BIS up, SOXS flat, TVIX down, JNUG up nicely, Gold stocks look close to busting out. We actually broke the April and March highs today and maybe just maybe we are about to see the GDXJ charge at 30.

 

David Skarica

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  • 5 months later...
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A couple of reference points for HK property:

 

1. I rolled over a lease to an existing tenant at a 7% increase (slightly below the rate of inflation and below what agents were telling me I could get but it's better than having to find a new tenant);

 

2. we put the unit we were staying in while our home was being redecorated on the market on Saturday. We've already had three offers at close to our asking price. The high offer is 17% above the previous rental (set in mid 2013), probably helped by the opening of the HKU MTR station as well as the continued gentrification of Kennedy Town.

 

Only two data points but rental demand in Mid-Levels appears to be pretty robust at the moment.

 

I've also added a few more shares in HSBC (HK:5) to the portfolio and purchased shares in Nine Entertainment (ASX; NEC). Both offer yields well above 6% and NEC is proposing to buy back 20% of its outstanding issued shares.

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  • 9 months later...

A couple of data points for those following the "collapse" of the Hong Kong property market.

 

This month I had two tenants leave. Both flats were leased to new tenants before the old tenants moved out with the vacancy between tenancies being less than two weeks in each case. One was rented for the same rent as the previous lease and the other for a small decrease. In both cases, I had multiple offers and I am sure I could have got higher rents but prefer to minimise the vacancy period - cash flow is everything in this business.

 

The flats were small units in Mid-Levels. In spite of the increased supply of new units, demand for rental accommodation in the area remains robust.

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That's interesting.

Rents supposedly HAVE fallen. But they may have peaked during the lease term and fallen back to where they were two years ago (or whenever the old leases were started)

 

Most of the supply increase is coming in the NT.

 

Are you renting mostly to expats?

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That's my thought as well - rents are about where they were when the old leases were signed. In one case the tenant had been in for 26 months and the other for 15 months.

 

Our tenants are usually expats with the occasional local.

 

There is a steady supply of new single block buildings coming on the market in Mid-Levels including one which is very close to one of these flats. The fact that I had multiple agents showing it and received multiple offers on both flats even before the old tenants had moved out shows that there is plenty of demand. It also helped that the tenants were co-operative in allowing people to view and kept the units tidy.

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"It also helped that the tenants were co-operative in allowing people to view and kept the units tidy."

 

That's an excellent thing - as shows you had a good relationship with them

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I have a standard clause in my lease allowing us to show prospective tenants the flat during the last month of the tenancy on reasonable notice.

 

We certainly try to be responsive when things need fixing - that is probably the most important thing in keeping a tenant happy. Two of our longer standing tenants are allowed to arrange for urgent repairs themselves - it's generally quicker and takes up less of their time than adding us as an additional party.

 

Also, at the end of a lease term we are usually willing to take a slightly below market rent to keep a tenant in place which is much cheaper than having even a short vacancy + paying agency + paying the cost of the inevitable minor touch up work a new tenant will ask for.

 

The bottom line - land lording is a business and the tenants are my clients.

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That is well said, TI

 

BTW, did you ever get any Gold?

 

have you looked at any foreign properties?

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I still have a small position in gold, and a larger position in silver.

 

I'm not actively looking at buying a property at the moment (and haven't for some time). I did add to my equities instead, recently buying shares in China Dongxiang (HK:3818) and New Zealand Stock Exchange (NZX: NZX) to the portfolio.

 

As an aside, I had my Auckland hose appraised for the purposes of updating my estate and was shocked to find it has appreciated about 180% (+rental return) since I purchased in 2003. The bad news - it was last refurbished several years before I purchased and it need to spend a bit of money on it.

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(i posted this on the HL thread, and on AX):

 

Homes slump 'bottoms out'
Dominique Nguy Jul 21, 2016

Morgan Stanley and Citibank believe the Hong Kong property market has bottomed out, forecasting that home prices will rise by 5-8 percent in the second half of this year due to low interest rates and the release of "suppressed demand."

A report by Morgan Stanley said as the worry of an interest rate hike lessens and the unemployment rate remains at a relatively low level, it is predicted that the "suppressed demand" for flats may help lift the home price.

The bank forecasts home prices going up by 5 percent in the second half.
==
MORE : http://www.thestandard.com.hk/section-news.php?id=171818

Sure. Why not.
Property stocks bottomed some time ago, and are well off their lows.

I bought HK-10 too soon last year at $26, and then saw a 25% drop all the way down to $19.46. But HK-10 is now back above $26, and my position is in profit, with $50,000+ in dividends collected. But I am lightening up now, since I do not expect this (temporary?) rally to last, and expect lower lows in the months and years to come - given the supply that is coming.

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  • 2 months later...

I watched the Clinton - Trump presidential debate for 6 minutes before deciding that my time was better spent reading the reports of the "cop assaulted by boobs" case. How could what was once the greatest country in the world have come to a point when it has to choose between two such utterly unsuitable choices for the next president? Never before have I been grateful that I am not an American citizen or green card holder who will get shafted whoever wins.

 

I have limited exposure to direct investment in the US (through some real estate syndicates) and have decided to wind them down without reinvesting as each one exits. However wins, I expect higher taxes to follow and have no interest in contributing when there are other choices open to me.

 

Independently of the behaviour of electoral lemmings, I sold my shares in NZ lines company Chorus (NZX: CNU) at NZD4.20 feeling that they were a little overpriced considering their regulatory vulnerability and another of my companies has received a takeover offer which, if it goes through, will leave me with a fair amount of cash looking for a home but it's getting hard to find good value at the moment.

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This is about a battle between entrenched Globalism and America-First Nationalism

 

The entrenched powers are very dangerous, and it takes huge money and great courage to challenge them. Trump has both. And he also has a narcassitic personality. Without the ego, and his desire to "the Savior" of his country, he never would have taken on such a monumental task. Who else can you think of who would do it?

 

Ross Perot? He's too old now. He tried twice, and although he got some attention, and about 20% of the vote, he never secured the nomination of a major party. The second time, he dropped out - and some who were close to him say it was because his daughter life' was threatened.

 

Trump's children seem to be brave enough to take the risk with him. And maybe there's an understanding that if Trump's family is harmed, Chelsea will be jailed for her role in the Clinton Foundation crimes. In fact, that may happen anyway. The whole Clinton family may wind up in jail for criminal activity after Trump is elected. These are dangerous people, will to break the law and even kill, if the rumors are true. And they are financed by even more dangerous people.

 

Someone said that Trump is like the Robert Shaw character in jaws. Not a nice and genteel man. But someone who seems to have the courage and the knowledge to kill sharks. And many love him for that. Just watch one of his rallies and compare it with the small boredom fest around Hillary when she speaks. It wasn't meant to be this way. Jeb Bush was meant to be the opponent of Hillary. With one boring candidate against another, discussing the talking points fed by the controlled media. Trump upset the apple cart, and that is what makes this interesting

 

The bigger story to me, is the corruption of the media, Most of it backs Globalism, and their preferred candidate, Hillary.

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  • 1 month later...

Interesting to see that the HSBC on line mortgage valuations for properties are creeping up again. At least one of our properties is now at an all time high, though barely. In any case, the market has made the "experts" who predicted significant falls in the HK property market this year and last year (and each of the several years before that in some cases), look pretty stupid. Also interesting that some houses are now predicting modest increases in HK residential property prices next year. As an example, Morgan Stanley has predicted that HK home prices will rise by 5% in 2017.

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"... made the "experts" who predicted significant falls in the HK property market this year and last year

(and each of the several years before that in some cases), look pretty stupid.."

 

I don't take that personally at all, since I was not expecting a short and quick collapse, as some were

I think the Rally from the Q1 -2016 Low may be over now, or soon over,

But higher valuations may give it some staying power

 

I have long predicted a peak in 2015-2017, followed by a 3-5 year Drop.

 

I think the peak was Sept 2015, and we may have seen something like a Double Top in some locations.

but probably a slightly lower Low in the Index (I haven't been following the index, so will double check)

 

So, if I am still right the Low may come in 2019-2021, with 2020 the most likely spot for a major low,

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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.

 

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.

 

What I will be doing is watching the HK stock market on monday - is some of the developers take a hit, I will be very tempted.

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  • 3 months later...

Although this is more an investment in future drinking than anything else (and isn't even on the balance sheet), it's nice to see the value of my wine collection moving in the right direction again: https://www.bloomberg.com/news/articles/2017-02-17/wine-glimmers-like-gold-as-investors-see-end-to-stocks-rally

 

If wealthy investors from China really start buying again (possibly as a store of wealth to be kept outside China), prices could move a lot – compared to equities or real estate, it's a very small market. It's also some people may choose to take advantage of the high USD and look for assets that are, effectively, denominated in other currencies.

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I had two tenants leave (one is upgrading to a larger home and the other effectively claimed the unit was bad feng shui). In both cases, we had agreements signed with new tenants before the old ones moved out: one slightly lower and one slightly higher than the previous tenants were paying. Short version: I have seen no sign of declines in either rental levels or demand in the Mid-Levels.

 

In a lesson on why I prefer to keep tenants in place rather than try to get a bit more money by charging full market rent, the combined cost of a short vacancy, remedial repair work and agency costs was about two months rental in each case. This is typical.

 

As an aside, I checked the HSBC online valuations and found that they have been increased since I last checked when I did my 31 December, 2016 annual review. The current valuations are a new high water mark.

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  • 1 month later...

The allure of gold never seems to go away: https://www.bloomberg.com/news/articles/2017-04-12/india-gold-imports-said-to-jump-582-on-festival-wedding-demand

 

With a short term bond maturing later this month, allocating some of the money to topping up my (very small) precious metals holding is a possibility.

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  • 3 weeks later...

HSBC on-line valuations have increased again. Up just over 10% so far this year. On an anecdotal level, there has been a very noticeable uptick in the number of agents bringing buyers to look at units in our estate - perhaps people are finding more value in the secondary market than the primary market?

 

On a side note, I'm still trying to figure out why platinum sells at a discount to gold?

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The allure of gold never seems to go away: https://www.bloomberg.com/news/articles/2017-04-12/india-gold-imports-said-to-jump-582-on-festival-wedding-demand

 

With a short term bond maturing later this month, allocating some of the money to topping up my (very small) precious metals holding is a possibility.

 

Keep an eye on the 4-6 months Cycle, it could be headed down for a few weeks more.

I lightened up rather seriously on my Gold holdings, and will be looking to buy back in at lower levels,

maybe even on a retest (or break) of the Lows at $1050

 

"On a side note, I'm still trying to figure out why platinum sells at a discount to gold?"

 

That intrigues me too

> Platinum thread: http://www.greenenergyinvestors.com/index.php?showtopic=21213

 

BTW, have you given any more thought to the Philippines recently?

It is becoming more "World Class"

> http://www.greenenergyinvestors.com/index.php?showtopic=21438

 

There may be some bargains ahead over the next year or two... most likely in the secondary market

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A good reminder from the SCMP of just how frothy the HK property market is getting: http://www.scmp.com/property/hong-kong-china/article/2093466/hong-kong-homebuyers-turn-finance-companies-banks-tighten

 

Key points:

1. buyers are getting around the LTV limits imposed on banks by borrowing from non-bank finance companies and developers

2. the number of buyers resorting to non-bank finance is rising (but still much smaller than bank finance and cash purchases)

3. the article does not say whether developer mortgages are interest free for an initial period (as was common in 2003-2005)

4. banks' risk through direct exposure to the HK property market is still very limited. Indirect risk through loans to major HK developers is also not of concern because the developers' balance sheets are, in general, very strong. Indirect risk through loans to finance companies is rising but is unlikely to be enough to topple a bank even if we saw a repeat of the 60%+ downturn that took place from 1997-2003

5. the misdirected government cooling measures continue to distort the market

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Keep an eye on the 4-6 months Cycle, it could be headed down for a few weeks more.

I lightened up rather seriously on my Gold holdings, and will be looking to buy back in at lower levels,

maybe even on a retest (or break) of the Lows at $1050

 

"On a side note, I'm still trying to figure out why platinum sells at a discount to gold?"

 

That intrigues me too

> Platinum thread: http://www.greenenergyinvestors.com/index.php?showtopic=21213

 

BTW, have you given any more thought to the Philippines recently?

It is becoming more "World Class"

> http://www.greenenergyinvestors.com/index.php?showtopic=21438

 

There may be some bargains ahead over the next year or two... most likely in the secondary market

 

Thanks for your comments on platinum. If I have read the data correctly, the market is still in surplus + precious metals generally are on a down wave so I will hold off for the time being.

 

I continue to like the Philippine economic story in general. I remain concerned about (i) over supply and (ii) liquidity + taxes on exit. I'll keep watching but personally think its too soon to be jumping in.

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"precious metals generally are on a down wave so I will hold off for the time being"

 

The Low of the 4-6 months cycle may be coming soon,

 

I will probably buy CALLS on GDXJ or GDX (or a Platinum etf) to keep my risk limited

when I tred into the market next

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Thanks for that. I'm not that familiar with options, so will probably stick with notional precious metals with BOCHK.

 

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

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"Thanks for that. I'm not that familiar with options"

 

A CALL:

You pay an "options premium" upfront, and that is all you risk.

Before maturity, you have to decide whether to "exercise" or not.

And if you exercise, you pay the exercise price.

The longer before you have to make that exercise decision, the higher the premium you need to pay

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