Shenzhen Expressway purchased

This morning I added Shenzhen Expressway (548) to the private portfolio, paying HK$3.73 per share. When I started buying individual stocks in May 2009, I initially preferred other toll road operators which had lower gearing and less exposure to the export sector. Recent results and data suggest that the company is seeing meaningful revenue increases on a number of roads. Given the leverage on the balance sheet and the continued low interest rate environment, this gives me a basis for expecting profits to increase and, possibly, for the current yield of 3.6% to be enhanced.

Optimism abounds

In the space of a few short weeks, we have been bombarded with a tidal wave of optimism:

• GDP forecasts being revised upwards. Hong Kong is now forecasting 4%+ GDP growth for 2010 (depending on whose forecast you are looking at)
• Hong Kong residential property prices are forecast to increase by 10%, 20% or 30% next year on the back of continued tight supply (this is actually debatable), renewed confidence and a continued supply of cheap and plentiful mortgages (ditto)
• stocks will continue to appreciate, although at a slower pace - valuations based on fundamentals like P/B and PE are mid-range
• monetary tightening will not happen until 2010 Q3 - 2011 Q3 (ditto)
• unemployment is expected to start falling in Hong Kong and elsewhere in Asia (or may have already done so) (although still rising elsewhere)
• corporate earnings are rising again (or at least recovering)

Sure, there are plenty of doomsayers out there, but their voices are starting to be drowned out by the optimists. Anecdotally, the air quality in Hong Kong is visibly deteriorating, taxi queues and road congestion have got worse and restaurants are getting full again.

Bubbles? There is a lot of talk about bubbles in the local/PRC stock market and the local property market. While stocks and property have rallied a long way off their lows, by historical standards:

• mass market residential property in Hong Kong is still much more affordable and lower in absolute terms than in the period leading up to the Asian crisis in 1997
• stock valuations based on P/B are close to their long term average of 2x. PE looks more elevated - to the point were value is getting hard to find - but this does not indicate a bubble

While there are calls from the IMF among others to pre-empt a bubble in asset values, I see no need for such action at this point. Valuations are not stretched. The economy is still recovering from the impact of the crisis (relatively limited here compared to the US) and confidence is returning. More to the point, as long as the HK$ is pegged to the US$ and the US refrains from raising interest rates, the Hong Kong Monetary Authority has little choice but to keep the supply of money in Hong Kong at high levels.

All in all, things are looking a lot better than at this time last year.

Book Review: Strategy for the Wealthy Family

"Strategy for the Wealthy Family" by Mark Haynes Daniell is a thick door stopper of a book (478 pages + index etc) which addresses the needs of a a wealthy family seeking to preserve their wealth across generations.

While parts of the book are clearly more appropriate for very wealthy families with family offices or high end private bankers to take care of their needs, there is a great deal which could be adopted by lesser families (such as my own).

The author suggests that wealthy families adopt a formal strategy which amounts to treating the family in a similar manner as a business. Among other topics discussed:

• adopting a family constitution
• wealth preservation
• wealth management
• managing family business
• effective philanthropy
• living a truly wealthy life
• succession planning

There were sample documents for (among others) a family strategy document, an investment policy statement and an ethical will. There were two versions of the family strategy document, one for a US$5 million family and one for a US$50 million family. (Needless to say, I have no need of the latter.)

At the moment I am still in the process of accumulating sufficient funds to retire (target 2012/age 46). However, given our age difference, whatever we save may have to last my wife for 50 years. Accordingly, the wealth preservation sections where extremely useful and I will be looking to adopt some (but not all) of them.

Recomended (even for not so wealthy families).