Tuesday, June 30, 2009

China Molybdenum purchased

This morning I added China Molybdenum (3993) to the private portfolio, paying an average of HK$5.63. The share has a relatively unexciting 3.2% dividend yield and is essentially an investment in the expectation that China's production of steel and petrochemical products will expand.

Caltex purchased

This morning I added Caltex (CTX) to the private portfolio at an average cost of AUD13.49 per share (including transaction costs). Over the last few months the company has achieved some positive developments including securing a material part medium term debt funding (gearing was reasonably modest to begin with) and demonstrating that earnings are not only relatively unaffected by the recession but also some margin expansion.

Brokers have been upgrading projections and valuations. While the stock has advanced a long way from its low point last December, it is still at a very attractive 5.7% yield. The dividend is fully franked (which effectively means that it is largely tax paid for Australian tax residents and exempt from withholding tax for non-residents such as myself).

Monday, June 29, 2009

USD/NZD FX contract entered into

My previous contract matured today. Being short the NZD against the USD turned out to be a a reasonable investment as the USD traded sideways against the NZD during the contract period. As a result I kept the premium without either having the contract exercised against me or having a repreat of last month's situation where I would have been better off simply buying the NZD outright.

I have entered into a new FX contract:

Currency pair: USD/NZD
Strike rate: USD1.00 = NZD 0.6200
Spot rate: USD1.00 = NZD 0.6436
Annualised premium: 7.89%
Calculation date: 30 July 2009
Maturity date: 31 July 2009

I have gone further out of the money for a lower return as I intend using this money as part of an investment in my current employer next month and would prefer not to be hit.

Friday, June 26, 2009

Yangzhou Coal purchased

I added Yangzhou Coal (1171) to the portfolio today, paying an average of HK$10.62 per share. The company offers an attractive 4.3% dividend yield, a single digit price earnings ratio with potential upside being driven by a combination of growing demand for power generation in China and rationalisation of China's coal mining industry.

CNOOC purchased

I added CNOOC (883) to the portfolio today, paying an average of $9.72 per share. With a healthy dividend yield of 4.4%, a relatively modest price earnings ratio and the backing of the PRC government, I view CNOOC as a low risk investment in the oil industry.

Thursday, June 25, 2009

Equity put options written

Two of the equity put options I wrote last month expired unexercised. I have rolled the contracts forward for another month using the same underlying stocks. Details are as follows:

Contract #1

Underlying: Hutchison Whampoa (13)
Market price: $51.50
Strike price: $50.90
Valuation date: 23 July
Maturity date: 27 July
Implied yield: 31.15%
Net purchase price if exercised: $49.58

Contract #2

Underlying: China Construction Bank (939)
Market price: $5.96
Strike price: $5.91
Valuation date: 23 July
Maturity date: 27 July
Implied yield: 39.51%
Net purchase price if exercised: $5.72

In both cases, I have been more aggressive than with last month's trades and selected strike prices which are closer to the market price on the basis that they are both stocks I would be comfortable purchasing at these prices.

If I get hit I will have effectively purchased the shares at about a 3.7% (HWL) or 4.1% (CCB) discount to the prevailing market prices.

Anuhi Expressway purchased

This morning I added some shares in Anhui Expressway (995) to the portfolio. I paid an average of HK$4.33 per share.

The company has little debt, a reasonable ROE and offers a solid trailing dividend yield of 5.9% (which I expect to be at least maintained). As far as I can tell, there are neither material capex obligations in the near future nor plans for competing toll roads in the pipeline (although I do not take the latter for granted given the infrastructure spending binge which China is on at the moment). Rising levels of private car ownership and continued economic growth should result in continuing growth in revenue.

I also realise that I now have three toll road companies in the portfolio which is enough exposure to this sector.

World Wealth Report 2009

Capgemini and Merrill Lynch Global Wealth Management released the 2009 World Wealth Report yesterday. The 13th edition of the report provides a statistical snapshot of the world's wealthy.

For definitional purposes, the report looks at high net worth individuals (HNWIs) being persons with investable assets between US$1-30 million and ultra high net worth individuals (UHNWI) being individuals with investable assets worth more than US$30 million.

Highlights from the report:

1. the number of HNWIs fell by 14.9%. Their wealth fell by 19.5%. There are now 8.6 million HNWIs globally;

2. UHNWIs were hit even harder, with numbers falling by 24.6% and wealth by 23.9%. There are now an estimated 78,000 UHNWIs globally;

3. the largest decline was experienced in Hong Kong, where the number of HNWIs fell a staggering 61.3% (at least in part a reflection on the size of the local stock market relative to both population and GDP);

4. there was a significant shift in asset values away from equities (which fell from 33% of total assets to 25%) and riskier exotic products to assets that were perceived as being safer - mainly towards cash (which rose from 17% of total assets to 21%), fixed interest, simple structured products and, to a lesser extent, real estate. Although not stated in the report, I suspect that at least some of the change in asset allocation was imposed by falling asset values in most asset classes (i.e. not all of the change was due to conscious decision making);

5. there was a noticeable shift in domestic preference with investors allocating more of their assets to domestic investments;

6. the amounts spent on collectibles and luxury items fell very significantly;

7. China overtook the UK to have the fourth highest number of HNWIs (the US, Japan and Germany remain the top three);

8. the only major asset classes which did not lose money for investors in 2008 were cash and treasuries (or equivalent). Everything else lost money (including hedge funds);

9. in addition to a shift to safer assets, there was also a shift to simpler assets. The amount invested in complex structured products increased but there was a noticeable increase in simple wealth preserving products and a decline in riskier and more complex products;

10. not only did HNWIs have 21% of their assets in cash or cash equivalents, nearly a fifth of that cash was held outside the banking system;

11. in spite of a fall in demand for luxury goods, the Forbes Cost of Living Extremely Well Index rose 12% - as usual this was well above the rate on inflation. This has been a persistent trend and goes a long way to explaining why a million dollars does not support anywhere near the lifestyle it used to.

There is a section of the report which discusses the wealth management industry which was of little interest to me (although I did note that there was a noticeable shift towards lower margin products - in effect investors became more fee sensitive).

Tuesday, June 16, 2009

Equity put option written

One of my equity put options written against the Hong Kong Tracker fund (2800) expired yesterday.

As the valuation price was below the strike price, the option was not exercised and I pocketed the option premium.

As with the last roll over, I decided to be more aggressive and wrote a put option against a single stock rather an an index fund. In this case I selected Sinopec (386).

Details are below:

Underlying: Sinopec (386)
Market price: $5.84
Strike price: $5.58
Valuation date: 13 July
Maturity date: 15 July
Implied yield: 22.38%

If I get hit I will have effectively purchased the shares at about a 6.2% discount to the prevailing market price.

Friday, June 12, 2009

A new high water mark

I run two balance sheets for tracking out net worth and progress towards our eventual retirement:

1. personal balance sheet: this balance sheet tracks just my personal position and only marks to market tradeable investments such as shares, bonds, derivatives etc. Real estate is held at gross cost (purchase price + transaction costs). While this is artificial, it makes it easier to monitor my savings rate and the performance of the more actively managed part of my portfolio. I update this balance sheet once a month;

2. combined household balance sheet: this balance sheet tracks all our investments (including our home) - both those which I hold and those which my wife holds. I also include properties at the most recently available mortgagee valuation posted on HSBC's web site. This balance sheet tends to get updated every two or three months (although changes to entries on the personal balance sheet flow through automatically).

The net worth on our combined balance sheet peaked in April 2008 - after which it fell 19%. Following the rebound in property prices being reflected in HSBC's valuations, our net worth has now exceeded the previous high water mark (although not by much).

Of course, a large part of the recovery in net worth is due to cashing out a long service benefit when I left my old job. Investment performance also helped significantly following my decision to aggressively redeploy cash into equities. A lesser part is due to savings. However our properties are still below peak valuations and some of our funds and commodities purchased before the bear market are still worth less than we paid for them (Vietnam and lean hogs being the worst).

In any event, its nice to know that our finances are still moving in the right direction.

Friday, June 05, 2009

Amvig purchased

Yesterday I added Amvig (2300) to the private portfolio. This is a straightforward investment in the tobacco industry (the company's main business is tobacco packaging). More specifically, the company is achieving a degree of market leadership in a number of emerging economies that, in other industries, is often associated with higher margins.

Tuesday, June 02, 2009

Pacifc Basin purchased

Yesterday I added Pacific Basin (2843) to the private portfolio at $5.71. The company has a solid balance sheet following a recent capital raising, has not rebounded as much as other comparable shipping companies and does not appear to reflect the recent dramatic rise in the BDI (Baltic Dry Index).

As a negative, the yield is distinctly uncertain. However, after only a month since I started putting money into direct equity purchases, I have already got to the point where I no longer think it is the best practice to focus on high yielding stocks only.