Tuesday, May 22, 2012

China Blue Chemical purchased

I have added a few more shares of China Blue Chemical (HK:3983) to the portfolio. The company offers an acceptable yield of 3.7%, is expanding its business, is expected to benefit from better pricing (although this may be limited due to price controls) and has a very solid balance sheet with RMB2.8 billion in cash and deposits as at the last balance date.

I paid HK$5.22 per share.

Friday, May 18, 2012

AUD/HKD FX contract opened

I have been wanting to have a little more money invested in Australia and New Zealand - the objective is to have enough assets allocated to AU/NZ to effectively pay for the accommodation and other living costs incurred should I choose to spend two or three months a year in those countries.

With both currencies having weakened considerably in recent weeks (thanks Greece/Euro zone politicians), I've decided to move some money offshore. Rather than simply convert and remit, I entered into a forward contract to try and profit from the current market volatility.

Here are the details:

Expiry date: 29 May, 2012
Fixing date: 25 May, 2012
Spot rate: 7.6560
Conversion rate: 7.600

If the AUD is at or below 7.600 on 25 May, I will be buying AUD at an effective exchange rate of 6.585. If the AUD is above 7.600, I will pocket the premium which is about what I would earn on the sum in question over a 12 month period (because the bank deposit rates are so low).

Financial repression for the long term?

While much of the world's economic attention is on Greece and the country's possible/likely/inevitable exit from the failed Euro experiment, it's worth remembering that many of the world's developed countries continue to run deficits at levels which can only be labelled as fiscally unsustainable - Japan, the United States and most of Western Europe come to mind.

Given that the ruling politicians and the entitlement classes that they are beholden to are unlikely to ever make the cuts needed bring their out of control spending down to sustainable levels it seems quite possible that financial repression in the form of negative real interest rates may well be with us for quite some time. In effect the central banks will (i) keep interest rates nominally low not just in an attempt to stimulate the economy but because the debt burden is so high that higher nominal rates could easily become unsustainable and (ii) keep pumping in money to keep official inflation at a positive number to gradually erode the real value of their debts.

If this logic proves to be correct then borrowing to invest in real assets which have sustainable yields which are higher than the cost of funding is the best strategy for the longer term - inflation should eventually push the value of the asset and its income stream up while the nominal value of the debt remains unchanged. Of course there is a lot of short term between now and the longer term and individual assets and whole asset classes can, and often do, fluctuate wildly in value meaning both that the strategy is not for the faint of heart and that considerable safety margin needs to be maintained.

This makes a pretty good case for not paying of mortgages early. In fact, I am considering going further and borrowing to buy another small flat in Hong Kong in the middle of next year. One of my mortgages will have been completely amortised by then and I will be able to offer both the existing property and the new property as collateral and the combined rental income will comfortable exceed the mortgage payment on the new flat. Of course, I will still need to get over the hurdle of whether  the bank will lend to me when I no longer have any employment related income.

Thursday, May 17, 2012

Sinopec purchased

This morning I added a few more shares in Sinopec (HK:386) to the portfolio. The company offers are 5.1% dividend yield with moderate prospects for longer term growth (in spite of China's regulatory controls adversely affecting refining margins).

I paid HK$7.20 per share.

The Euro and reality

The soap opera of the Euro continues to make headlines and drag markets down.

Exactly why anyone would be surprised by the Euro zone's woes is completely beyond me. At the end of the the day the Euro is/was founded on the belief that a group of countries which had long term track records of continually spending more than they take in and increasing their national debt would suddenly become more fiscally responsible if the market imposed sanction of a currency market were taken away from them and they were given the freedom to borrow more money at lower interest rates.

On planet earth we call that enabling behaviour. In the Euro zone it's called monetary policy.

While the losses to the portfolio in recent weeks have more or less unwound the gains made earlier this year, given that I am still a net accumulator of assets (at least for another 7-12 months), I suppose I should be celebrating the opportunity to buy at lower prices. Somehow, I am struggling to do that.

Friday, May 11, 2012

Henderson Land purchased

Henderson Land's (HK:12) share price droped below HK$40 this morning. Given the size of the discount to NAV, the Chairman's recent purchases, expectations for its development pipeline and the size of its land bank, I find the shares attractive (although the 2.5% yield is not exciting) and have added them to the portfolio. This position taken is a large one and will make Henderson one of my top ten individual equities.

I paid HK$39.80 per share.

Wednesday, May 09, 2012

Portfolio top ups

In what is so far prooving to be an exercise in catching falling knives, I placed a series of buy orders to add small quantities of additional shares to some of my existing positions. So far the following have been filled:

  • Hang Seng Bank (HK:11): at HK$106.00. Essentially buying for yield
  • VoDone (HK:82): at HK$0.94. Buying at about the recent placement price
  • COSCO Pacific (HK:1199): at HK$10.36. Another yield play
  • VTech (HK:303) at HK$86.10. A high yielding exposure to China's growing consumer sector
So far it's looking pretty ugly.

I have outstanding buy orders in on a few other stocks which are being sold off.

Saturday, May 05, 2012

Hong Kong property prices - still strong

Having been listening to calls that Hong Kong's property market is a bubble which is about to burst for a few years now, it was both amusing and pleasing to see that the on line valuations posted by some of the banks in Hong Kong have recently been revised upwards. I have previously pointed out that, while the Hong Kong property market is expensive and it is very hard to justify buying properties for yield, it does not possess any of the characteristics of a bubble. That said, I still regard the market as being too expensive and had been expecting prices to decline.

In any event, the new valuations have pushed our household's net worth to an all time high (the previous high was set in February this year). For most of our properties, the revised valuations represent a new high water mark. While this has no bearing on either the cash flow which will fund living expenses after I retire) or my retirement plans generally, it is a nice feeling but somewhat tinged with regret that we did not add to the portfolio in 2010 or early 2011.

Friday, May 04, 2012

Vietnam ETF purchased

Yesterday I purchased a few more units in the Vietnam ETF (HK:3087). The reasoning remains much the same as for my previous purchases - belief that the market will grow due to a combination of deregulation, better inflation control, favourable demographics and foreign investment.

I paid HKD201.00 per unit.

Wednesday, May 02, 2012

Sino Oil & Gas - partial sale

This morning I sold some of my shares in Sino Oil & Gas (HK:702).

This is the worst investment in the portfolio by a considerable margin. The sale price of HK$0.193 represents a loss of nearly 53% against my average purchase price.  As an exercise in naval gazing, I will spend some time revisiting both the decision to get into this investment and the failure to sell much sooner. As a starting point, while I expect any portfolio to have winners and losers (in both absolute and relative terms), the real problem with this one was that there was not enough clarity on the future earnings stream. As one commentator pointed out there was also an excessive amount of options being granted to management which is never a good sign for investors.

The sale proceeds were reinvested in BCIA (HK694) as reported in my previous post.

BCIA purchased

This morning I added a few more shares in Beijing Capital International Airport (HK:694) to the portfolio. In spite of the recent run up in the share price, the stock still looks reasonably attractive as a long term investment.

I paid HK$5.00 for the additional shares.