Recent Market Situation- HK banks

Recently, I have gained interest in HK banks as they are trading rather attractively to warrant an entry.  Here are some statistics which I quickly worked out to have a clearer picture.

We see that HK banks are trading to a premium to NAV and have attractive dividend yields as compared to SG counterparts. However, we must be well aware of the underlying risks that are entailed.

The main risk here is the HK protests which saw an escalation in tensions after a 'mask-ban' was introduced by the government. In my opinion, I think a resolution (at least in the short term) is highly unlikely and we might see more funds pulling out of HK. Perhaps the steep discount of HK stocks might warrant us to have a second thought about buying HK banks.

Naturally, the second risk is the trade war where HK is likely to be hit hard too in terms of exports, especially due to its high reliance on China capital.

This might of course be a good bet, if the tensions do cool down and HK banks will indeed rally hard. But your guess is good as mine.

What do you think? 

Mapletree NAC Thoughts

I am of the view that there will be a short term drop in Mapletree NAC's price.

Chief of all, the growing instability in HK is something to worry about. which impacts its main property Festival Walk, which constitutes 62% of our reit's NPI (based on the most recent annual report). This might lead to lower sales in the mall and lower NPI, which will affect our dividend payout.

Secondly, USD looks poised for a rate cut soon, and if we assume the USDHKD peg to hold, then HKD should depreciate against SGD, which might also contribute to a lower NPI.

Thirdly, the RMB has weakened quite a fair bit to 5.12 against SGD which will also adversely affect the NPI for China properties in the reit's portfolio.

On the other hand, the drop might be mitigated by Japan properties, where JPY appreciated sharply against SGD due the yen being a safe haven currency and everybody flocking to it during trade war concerns. The takeup in yen is so extensive that nearly all of their bonds are now having negative yield which signals the extensive demand for yen.

Of course, let us not forget that approximately 69% of forex conversions have been hedged, so we are dealing with approximately 31% of risk here.

Currently, NAV is at 1.438 which is about a 13 cents premium from its current price of 1.3. I will be looking to wait for it to drop to its 52-week low of 1.07 (although might be too difficult to wait for).

What are your thoughts about the pluses and minuses? Please share!

Market Thoughts

Recently, there have been a lot of ups and downs in the market. The first thing that caught my eye was the falling yuan which broke the seven level against the US dollar, which signaled the current monetary policy in China. The casualties today were Mapletree NAC which dropped 4.48% and CapitaR China which dropped 1.99%. The drop in RMB also meant it dropped against SGD which means it will affect the two reits' profits.

Hong Kong also saw the escalation of protests in the airport where Cathay Pacific got the brunt in the falling HK market. It dropped about 7-8% these few days as flights were blocked.

But interestingly, US market has rebounded today due to simmering of US-China trade tensions and yields and stocks prices are soaring.

I am focusing on Bank of China at the moment which is 2.97 HKD and giving a 7% yield. At point of writing, SGDHKD is 5.67 which might go lower if USD is going to strengthen further this year (assuming if USDHKD peg remains intact).

Moreover, SIA seems to be an interesting point too since the HK airport protests will affect airlines (albeit not as much as Cathay),  but currently at 9.05 and today had a 52-week low of 8.95.

Probably HK market will rebound (briefly) due to the rebound in the US. But I believe in the short term the HK market is probably going to breach new lows as the protests do not seem to be subsiding.

STI and HSI Red Amidst the Trade War

A short read today showed that the STI plunged 2% due to escalating tensions in the US-China trade war. This could be contributed to the tariffs which Trump promised on Friday, which includes a 10% tariffs on US$300 billion worth of goods. On the contrary, the Federal rate cut did not give the expected stimulus to the stock market, which might not be unexpected as based on current market conditions, a rate hike should have been more logical.

As I am very interested in the STI constituents, I decided to see which stocks were bearing the brunt today.

The first stock is SIA which is hovering near its 52-week low of 9.01. At this point of writing, its current price is 9.02.

The second stock (which I have mentioned before) is SATS which is hovering near its 52-week low of 4.55. At this point of writing, its current price is 4.74.

Other notable stocks include DBS which had a 3.2% drop today.

Another point of interest will be the HK market, where today, 5th of August, is notably the biggest strike in Hong Kong's history. I think it is a double whammy for HK as they have to deal with the twin reasons of the trade war and the ongoing protests.

I am currently looking at Bank of China, which has broken its previous 52-week low of 3.19 to 3.05, which makes it even more appealing to go in. (Let us bear in mind that BOC is actually based in China and is just a H-share) I will be looking at other HK banks but I will be probably avoiding those banks based in HK such as the BOC (HK) holdings and Hang Seng Bank etc.

Just a superficial thought.

HK investing Thoughts

I have always thought about investing in Hong Kong shares as a form of diversification out of Singapore. Furthermore, this could increase my pool of opportunities to buy undervalued stocks since the population of choices is increased (perhaps by a lot of times) since HK market capitalization greatly exceeds that of SG.

Source: Pexels Free Stock Photos

Let me start with a disclaimer that I am not paid in any way for my post, these are purely my thoughts.

During my travels, I have been using the DBS Multicurrency Account (DBS MCA) and I realize that by creating a Hong Kong Dollar (HKD) wallet, I am able to convert SGD into HKD and buy stocks directly.

A quick check at DBS website tells me that the rate I am offered is 1 HKD for 0.1762 SGD, or 1 SGD = 5.675 HKD.

Source: DBS Exchange Rate Website

I then log on to my DBS ibanking (this is an example).

Source: My own DBS ibanking portal

Do note the deviation from the market rate and whether it is a comfortable deviation. For example:

Source: Yahoo Finance (SGDHKD)

Presuming I am investing SGD 10,000 which will equate into HKD 56,750.

So why am I talking about all of these? There is a HK stock which currently interests me, Bank of China. It is currently trading at 3.26 HKD but its NAV is 6.205 which suggests undervaluation. 52-week low is also at 3.19 which further supports this premise. Dividend payout is according to 6.2% and all statistics are from InvestingNote.

This is just a preliminary look for me and I think some of the risks here is firstly: the controversial extradition bill which caused a rally of 1 million people in the streets here. The loss of investor confidence in HK markets might be bearish for stocks and is something worth looking at. Secondly, if HKD depreciates against SGD, there will be a reduced profit. Since HKD is pegged to USD and there have been rumors of rate cuts, we might expect further depreciation of USD and similarly HKD.

These are my current thoughts now but always happy to hear new ideas about how you will invest in the HK market.