The local Hong Kong stock market is currently offering reasonably good value based on trailing numbers but faces headwinds in the form of (i) expectations of further interest rate increases (ii) very expensive property prices (iii) stagnating rental levels (iv) a high currency and (v) the prospect of a US incited trade war once Trump takes office. Given that there are a number of large, well managed companies offering trailing dividend yields of 4-5% which I believe are likely to be sustainable, I am tempted to add to the portfolio. However, European and US markets are currently at very high levels and face all or some of the same headwinds as Hong Kong. If/when they correct (or enter a bear market), history would suggest that the Hong Kong (and other countries') market will move down.
It is also highly relevant that (i) I no longer have any employment related income, meaning that I need a certain amount of income from my investments to meet expenses and (ii) our savings need to last us for 40+ years which means that, over the longer term, I have to generate real returns at least equal to our annual cost of living.
Short term: I have no plans to make any major changes to the portfolio, instead looking to make ongoing incremental changes/investments:
1. USD income will be applied at reducing the balance of my USD margin facility;
2. RMB income and bond maturities will be reinvested in RMB denominated bonds/equities. This is a very very small part of the portfolio and I have no plans to buy more RMB;
3. I will be investing/reinvesting my existing AUD/NZD cash balances in more ASX/NZX listed equities;
4. I am tempted to increase my exposure to the AUD/NZD but am unsure of the timing. Given that I want to increase AUD/NZD asset allocation over the longer term, it probably makes sense to make regular transfers;
5. I will add to my HK equity portfolio as and when value is identified. I have no wish to let cash levels build too high.
Long term: I wish to add to the property portfolio in both Hong Kong and New Zealand:
6. for New Zealand, I have a very specific target and will have to wait for a property in that area to come onto the market and then I will have to pay through the nose for it. This particular purchase is more about having a place to live in should we decide to spend more time there than it is about being a good investment;
7. for Hong Kong, the double stamp duty is a major disincentive to buying another property. I am hoping that when the time comes, prices will be lower and at least some of the punitive taxation measures will have been removed. Optimal timing is in early/mid-2021 when two mortgages will be paid off. If valuations, interest rates, stamps duty etc are aligned, then I will look to buy. If not, I'll invest elsewhere.
Non-Financial: just more of the same for 2017 – continue my studies, keep writing the next novel, work on my fitness (not good at the moment) and possibly clean up several years worth of unfixed photos.