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.

Monday, June 30, 2014

Financial Review - June, 2014

June was an excellent month for my investments.

Net worth moved higher as gains in my Hong Kong and emerging market equities equities and rental income were enough to overcome living expenses, a small decline in Au/NZ equities and marginally unfavourable FX movements. Expenses were high.

Here are the details:

1. my Hong Kong equity portfolio appreciated meaningfully. There were no Hong Kong transactions this month, but I received a number of dividends (all in cash);

2. my AU/NZ equities declined very slightly. I added shares in National Australia Bank, PGG Wrightson and Gemworth Mortgage 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 higher. Silver is my only position;

5. the properties are at full occupancy and all tenants are paying on time. I managed  to roll over a break lease with zero vacancy. The tenant who was paying a reduced rental while building renovation works were being done is now paying the full rental. There were only minor repairs this month;

6. currency movements were slightly adverse with a small fall in the AUD. The NZD was flat. I purchased more AUD this month;

7. my position in bonds remains small;

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

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

My cash position declined slightly. I currently hold 46.1 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 May, my net worth rose by 2.22%. The year to date increase is 3.66%.

Gemworth Mortgage purchased

I have added Gemworth Mortgage (ASX:GMA) to the portfolio. GMA is recently listed provider of mortgage insurance to the Australian residential property market. Given their conservative practices (e.g. the will only provide insurance on low doc loans up to 80% LTV) and the increasing demand from foreign investors for Australian property, I am reasonably optimistic that the company will at least meet its prospectus forecasts. The prospect of a 25 cps annual dividend in FY2015 with (probably) full franking credits (7.5% yield) makes this a very appealing addition to the portfolio. I can also see it being of interest to Australia's self-managed super schemes.

I paid AUD3.29 per share.

Edit: I purchased additional AUD to make the purchase.