Thursday, July 31, 2014

Financial Review - July, 2014

July was another positive month for my investments.

Net worth moved higher as gains in my equities equities and rental income were enough to overcome living expenses and marginally unfavourable FX movements. Expenses were high.

Here are the details:

1. my Hong Kong equity portfolio appreciated. There were no Hong Kong transactions this month, but I received a number of dividends (mostly in cash, but I did take scrip for COSCO Pacific);

2. my AU/NZ equities appreciated. There were no purchases this month; equity ETFs were up (India, Vietnam, Hong Kong and China) in line with the local markets. There were no new purchases;

4. my commodities were flat. Silver is my only position;

5. the properties are at full occupancy and all tenants are paying on time. There was only one minor repair this month;

6. currency movements were slightly adverse with a small fall in the NZD. The AUD was flat;

7. my position in bonds remains small and got smaller with two bonds maturing this month;

8. expenses were low. I purchased a few cases of en primeur wine;

9. there were no transfers to Mrs Traineeinvestor this month.

My cash position incased slightly. I currently hold 47.5 months of expenses in HKD cash or equivalents. It was one of those months when holding any cash feels like a lost opportunity (I know, I know - I have to hold enough cash to cover living expenses for a few years).

For July, my net worth rose by 2.74%. The year to date increase is 6.49%.

Wednesday, July 30, 2014

Bond maturities

This month I have had to deal with two bond maturities (i) the first tranche HKSAR government iBonds and (ii) PRC govt RMB bonds. In the current interest rate environment*, I basically view bonds as a place to hold money that would otherwise be earning next to zero in bank accounts. Since I already have more cash on hand than I would like, finding new home(s) for the matured principals is desirable. Holding an asset that is earning less than the rate of inflation is irritating and expensive.

Unfortunately, a quick look at the HSBC and BOCHK lists of bonds available is discouraging - the massively wide spreads are a complete turn off - and the rates offered for term deposits are equally pathetic. So I will have to look a bit further. If all else fails, I would consider adding to some of the safer equities and collect the dividends. But, given the rally in the HK market over the last few months, I am not sure if I want to do this either.

More thinking needed.

* if postive real returns could be achieved, I would be buying bonds for their risk/return profile.

Wednesday, July 02, 2014

Longer term currency risk

The HKMA injected HKD16 billion to defend the peg today. This is the first intervention since December 2012.

While I have no short term concerns that HKD will be repegged (people have been periodically predicting the end of the peg long before I arrived in HK more than 20 years ago), in the longer term (which could be very long term) it will either be adjusted or removed. If that were to happen in conditions like those prevailing today, the HKD would be revalued upwards and the relative value of my overseas investments would go down. As far as portfolio construction is concerned, while investing outside HK provides diversification and a closer alignment between household income and expenses, it does add to the longer term risk exposure.

Since the cost of hedging is prohibitive, this is largely a case of being aware of a potential event about which I can do nothing.