Sunday, March 23, 2008

Hong Kong is China? Taiwan soon?

Our good friend Salvatore Dali did it again, he spotted a good money making opportunity. Is Hong Kong dollar undervalued? Yes. Why? Hong Kong has gone through some structural change with the rise of China as economic powerhouse. Based on 2006 figures, the major export destinations for Hong Kong are China ( 46% ), USA ( 14%) and Japan ( 5% ). The export destination to China has been growing at the rate of 10 - 30 % since 2002. Many have pointed out rightly China was the savior that pulled Hong Kong out of recessions when property and stock market went bust. You won't believe that Hong Kong is in full employment today.

Hong Kong will soon is China. Just look at HSI Index, almost 30-40% of them are H Shares ( China Mobile, Petrochina, China Life Insurance, China Construction Bank, ICBC, etc). Earnings in HKD term will expand as Yuan is strengthening against USD.

With Hong Kong Monetary Authority(HKMA) mimicking US monetary policy, i.e. keeping interest rate low, this will eventually spur property speculations and attract hot money. If the deposit rate is so low, it is a matter of time, the savers will pour money in stock market, very soon!. Coupled with foreign hot money, HKMA will not be able to sterilize the hot money fast enough, the assets buble will grow furiosly.

Putting the negative aside on potential inflation that will erode the quality of growth, I am keeping a sharp eye on potential rally on Hong Kong stock market. The recent tanking of Hong Kong market is a bit complicated, torn apart between two giants: China and the US. The Chinese inflation of 8.7% in February is very scary, the fear of further tightening may slow down Chinese economy eventually. As many still could not decouple their minds that Hong Kong is still the old Hong Kong, when the US sneeze, Hong Kong should catch cold. Not anymore Dude!

With the US banking stocks bashed down to almost 60 - 85%, the US stock market is almost bottom out(further bashing will have minimum weightage impact). However, there could some volatilities as many will look for negative news of US economy. Hong Kong may still could be dragged into this. As usual, I don't know when the rally will happen but I just know it will.

ETF Lyxor Hang Seng 10US $ can bought in SGX will be an effective vehicle to accomplish this.

PS, Jim Roger is betting on Taiwan market for the same reason, with both of the President candidates want to promote closer economy ties with China, this will bring about growth. Since Taiwan dollar is not pegged to USD, with a bit of tail wind, there will be faster gains from currency and stock market rally. Lyxor Taiwan 10 US $ can bought in SGX too. ( Will follow up with a write up when I can find more time)

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