I have received a payment in GBP. As I have no plans which involve investing in GBP denominated assets, I have no need to hold GBP cash in the private portfolio. That said, I have no immediate need for more HKD either which leaves me rather neutral on whether I keep the money in GBP or convert to HKD.
Accordingly, rather than simply convert back to HKD at the prevailing spot rate (less the bank's spread), I entered into an FX contract.
Details are as follows:
Currency pair: GBP/HKD
Strike rate: GBP1.00 = HKD 12.76
Spot rate: GBP1.00 = HKD 12.7626
Annualised premium: 12.775%
Calculation date: 31 July 2009
Maturity date: 3 August 2009
In effect what I have done is written a put option on the HKD against the GBP. If the HKD rises/GBP falls, I will end with HKD at a better conversion rate than I would get if I did the conversion today (including interest, the effective rate would be 12.902). If the reverse happens, I will still hold the GBP but will be earning a rate of interest well above what I could get on bank deposits.
Given my (marginal) preference to hold HKD rather than GBP, I have used a strike price which is close to the spot rate (in spite of which the premium is actually quite low). The only thing I do not want to see happen is for the GBP to fall significantly against the HKD during the contract period. My break even closing FX rate is 12.62. If GBP drops below this level on 3 August, I would have been better off doing a straight conversion.
Thursday, July 02, 2009
Wednesday, July 01, 2009
Monthly Review - June 2009
May was yet another positive month for my investments. Modest gains in mark to market investments (shares, funds etc) were amplified by favourable currency movements and supplemented by positive cash flows from my investment properties. However, the biggest boost to the private portfolio came from the final payout from my previous job which arrived this month.
Here are the details:
1.my actively managed funds were mixed. I currently have investments in actively managed funds investing in Thailand, Taiwan, Eastern Small Companies, European Small Companies and Vietnam;
2. my index tracking funds were up slightly. I currently have exposure to Hong Kong, India, Taiwan and Russia;
3. my equity portfolio appreciated slightly. I currently have meaningful investments in 13 companies listed in either Australia (3) or Hong Kong (10). I also have some smaller residual positions dating back many years and some small speculative day trading positions which, collectively, are not meaningful;
4. my commodity investments were went up (with an increase in the price of nickel and a rise in my commodity ETFs more than offsetting a further decline in the price of lean hogs. I am now convinced that not only do pigs not fly but they are in fact burrowing animals;
5. all my properties are all fully rented and the tenants are paying the rent on time. I have both a positive cash flow and a surplus of income over expenses (which represents an increase in net worth). A bill for fixing two air conditioners did not change this;
6. currency movements were positive as the US$ declined.
I purchased several Hong Kong shares (CNOOC, Pacific Basin, Amvig, Yangzhou Coal and China Molybdenum) , one Australian share (Caltex) and entered into four OTC option contracts:(i) short NZD/USD (ii) writing a put options against Sinopec, China Construction Bank and Hutchison.
Income was strong (it will be erratic under the new job) and contributed to the gain for the month.
As mentioned, I received the final payout from my previous job which was a major boost this month.
My spending was low due to an absence of major items. The increased mortgage payments resulting from the refinancing completed yesterday will bite next month but most of the payments will be principal.
For the month, my net worth increased by a staggering 12.1%. The gains came from the combined effect of higher asset values, a weaker US$, a high savings rate and the payout. The year to date increase is 43.9%.
Even allowing for the payout arising from changing jobs, it has been fantastic progress this year. The possibility of retiring at the end of 2011 is, once again, very real.
Here are the details:
1.my actively managed funds were mixed. I currently have investments in actively managed funds investing in Thailand, Taiwan, Eastern Small Companies, European Small Companies and Vietnam;
2. my index tracking funds were up slightly. I currently have exposure to Hong Kong, India, Taiwan and Russia;
3. my equity portfolio appreciated slightly. I currently have meaningful investments in 13 companies listed in either Australia (3) or Hong Kong (10). I also have some smaller residual positions dating back many years and some small speculative day trading positions which, collectively, are not meaningful;
4. my commodity investments were went up (with an increase in the price of nickel and a rise in my commodity ETFs more than offsetting a further decline in the price of lean hogs. I am now convinced that not only do pigs not fly but they are in fact burrowing animals;
5. all my properties are all fully rented and the tenants are paying the rent on time. I have both a positive cash flow and a surplus of income over expenses (which represents an increase in net worth). A bill for fixing two air conditioners did not change this;
6. currency movements were positive as the US$ declined.
I purchased several Hong Kong shares (CNOOC, Pacific Basin, Amvig, Yangzhou Coal and China Molybdenum) , one Australian share (Caltex) and entered into four OTC option contracts:(i) short NZD/USD (ii) writing a put options against Sinopec, China Construction Bank and Hutchison.
Income was strong (it will be erratic under the new job) and contributed to the gain for the month.
As mentioned, I received the final payout from my previous job which was a major boost this month.
My spending was low due to an absence of major items. The increased mortgage payments resulting from the refinancing completed yesterday will bite next month but most of the payments will be principal.
For the month, my net worth increased by a staggering 12.1%. The gains came from the combined effect of higher asset values, a weaker US$, a high savings rate and the payout. The year to date increase is 43.9%.
Even allowing for the payout arising from changing jobs, it has been fantastic progress this year. The possibility of retiring at the end of 2011 is, once again, very real.
Refinancing completed
Yesterday we completed the refinancing of the mortgage on our home. This was the last of the three refinancings we undertook to take advantage of the reduced interest rates on offer. The refinancing involved four changes:
1. changing banks. Standard Chartered Bank offered the best terms;
2. a reduced interest rate. Our interest rate fell from Prime - 2.75% (works out at 2.25%) to one month HIBOR + 0.7% (works out at 0.95%);
3. drawing down additional principal. I need to put some capital into my firm next month and decided that borrowing against my home at 0.95% pa was a better option than spending my residual cash and/or selling some of my equities/funds;
4. reducing the term. Our old mortgage had about 16 years left to run. The new mortgage is for a 12 year term. While the net effect of a shorter term and additional principal (partly offset by the lower interest rate), will increase the monthly payments by about 60%, this is still well within my comfort zone.
Legal fees were HK$6,000 which is less than amount of interest saved in a single month at the reduced rate.
All I have to do now is make sure I earn more than 0.95% pa on my investments.
1. changing banks. Standard Chartered Bank offered the best terms;
2. a reduced interest rate. Our interest rate fell from Prime - 2.75% (works out at 2.25%) to one month HIBOR + 0.7% (works out at 0.95%);
3. drawing down additional principal. I need to put some capital into my firm next month and decided that borrowing against my home at 0.95% pa was a better option than spending my residual cash and/or selling some of my equities/funds;
4. reducing the term. Our old mortgage had about 16 years left to run. The new mortgage is for a 12 year term. While the net effect of a shorter term and additional principal (partly offset by the lower interest rate), will increase the monthly payments by about 60%, this is still well within my comfort zone.
Legal fees were HK$6,000 which is less than amount of interest saved in a single month at the reduced rate.
All I have to do now is make sure I earn more than 0.95% pa on my investments.
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