Thursday, May 26, 2011

Investing in Hong Kong


Dear Investor Juan,

Thank you so much for creating such a nice blog. I am learning a lot from you! And what made me admire you more is the lack of ads on your site!!! :)

I read from one of your comments that you are based in HK, is that right?

I just want to know if you can suggest any good online broker where I can subscribe to Monthly Investment Plan. I'd like to buy and invest in Blue Chip stocks. Is Boom HK Limited a good choice?

My goal is long-term savings, and of course, capital growth as well.

I have an account with HSBC HK. They also have a similar plan, like those offered by BDO EIP and BPI. I haven't compared the rates yet vs Dah Sing Bank.

I already invested in HSBC's UITF - HSBC Asian High Yield Bond Fund a week ago. It is my first ever investment! It was on IPO that time and I was kinda giddy and excited to make an investment.

But when I re-computed everything... The overall net gain is just 3.5% per annum, with monthly dividends. I'll wait for 5-10 years, most probably, before I sell it, hopefully with lots of gain.

HSBC is also offering stock monthly investment plan, but I'd like to compare it first with other online brokers.

Thanks a lot,

Dear Delphino,

Thank you very much for your flattering words. Whatever minimal income I do not earn by not running ads is more than made up for by the trust that I gain; this trust is important in reassuring readers like you that I say what I say because it's what I believe is right, not because of some self-serving motive.

Now for your questions.

Yes, I am based in Hong Kong. I've been here for around nine months. I bought my first HK security in October 2010, less than two months after arriving. In my opinion, based on my limited experience, the best securities or investment broker is whichever major Hong Kong bank you already have an account with (in my case it's Hang Seng Bank, while you have HSBC). Here are my reasons for saying this.

First, they're all basically the same. Unlike in the Philippines, most, if not all, commercial banks in Hong Kong also have securities trading licenses, so you can invest in any stock or investment fund (mutual fund or UITF) available in Hong Kong through your bank. Also, as far as I know banks and non-bank brokers charge the same fees, so there's no cost-wise advantage to switching.

Second, one thing that sets your bank apart from other brokers or even other banks is your relationship with your bank. You already know how (most) things work, and with one online platform you can conveniently manage all your other accounts (e.g., savings, investment, securities, credit card, etc.). Also, a better relationship with your bank could lead to more direct benefits in the future, like better credit scores, faster loan approval, and lower loan or credit card rates, for example.

Finally, your bank stands as the least risky choice, just because it is the alternative that you're most familiar with. In your case it's even better since you're using HSBC, which is arguably the biggest bank in Hong Kong; if you can't trust HSBC with your money, which bank can you trust, right?

To summarize, if you want to buy Hong Kong stocks or investment funds, or subscribe in a monthly investment plan like you mentioned, I suggest you just do it with your bank since there's no real advantage to switching or looking for another broker.

Regarding your fund of choice, your bond fund's 3.5% estimated annual return is decent, and comparable to similar offerings in the market. However, one thing that keeps me away from open-ended investment funds in Hong Kong (i.e., mutual funds and UITFs) is the steep fees, with most funds featuring high subscription and/or redemption fees on top of annual management fees upwards of 1.25% per year.

If you believe in the wisdom of passive investing, then you should not be paying such high fees for fund management. You can hold a well-diversified and inexpensive portfolio by investing in index exchange traded funds (ETFs), which are more-or-less behave the same comparable investment funds, but without the steep fees. These are traded like stocks, and so are also available through your bank's online platform (you should open a securities trading account with HSBC if you don't have one yet). The required minimum investment of ETFs depend on the current price and the minimum lot size, but it typically runs at 5,000 HKD.

In my opinion, a Hong Kong investor only needs to consider two ETFs to construct a well-diversified portfolio: one that tracks the Hang Seng Index and an index bond fund, weighted based on the investor's risk profile or age (i.e., a higher proportion of the bond fund for the more risk averse or older investor). As such, a majority of my own portfolio currently consists of the Tracker Fund of Hong Kong (stock code 2800) and the ABF Hong Kong Bond Index Fund (stock code 2819). However, as you gain more experience and become more comfortable managing your investments, you might want to further diversify your portfolio by investing in an internationally-diversified stock ETF or even a real estate investment trust (REIT). You can check out these lists of ETFs and REITs available in Hong Kong.

That's it. I hope I was able to satisfactorily answer your questions, and I hope you find the alternatives I presented here helpful. If you have further questions, don't hesitate to drop another line. Good luck!

Related Posts Plugin for WordPress, Blogger...