Money talks

PUBLISHED : Tuesday, 22 September, 2009, 12:00am
UPDATED : Tuesday, 22 September, 2009, 12:00am

Investing in coins and notes can be a money-spinning business only if you have a discerning eye and patience. Collecting and trading valuable mainland and Hong Kong coins has been a major activity in Chinese communities over the years due to strong market demand.

'Hong Kong has many really rare Chinese coins because they were brought to Hong Kong from the mainland during the 1950s. And the city's vibrant, open market means people can buy and sell numismatic collectables with few restrictions,' says Michael Chou, chief executive of Champion Hong Kong Auction, a company with operations in Hong Kong and the mainland specialising in online auctions for big-ticket collectables including precious coins.

Chou says investing in coins and banknotes yields a higher profit than other collectable items such as paintings and antiquities. 'Coins can be easily kept in bank vaults and, when the economy gets stronger, the value of the coins and notes goes up accordingly.'

Coins are generally in stronger demand than banknotes because there are more coin collectors and investors, according to Chou, whose company focuses mainly on Asian coins, particularly those from the Ming dynasty and those produced by the mainland in the 1950s and 1960s.

'Coins have a larger market than that of banknotes because people have collected them for thousands of years,' he says. 'Banknotes have less variety and fewer collectors.

'Chinese coins have wider diversity and come from different provinces and in different denominations. A lot of Chinese coins that were used in the latter period of the Ching dynasty were made in Britain and Germany with a lot of rare patterns. The most expensive Chinese coins were made with patterns outside of China,' Chou says.

Cheng Po-hung, manager of Commonwealth Collections Company and deputy president of the Hong Kong Numismatic Society, started dealing in numismatic items in 1992 and is a collector of a wide range of objects including stamps, nostalgic movie posters, and postcards of old Hong Kong. The Numismatic Society has more than 800 members.

Cheng says Hong Kong collectors possess many valuable Chinese coins. However, the increasingly wealthy collectors on the mainland are more interested in a wider variety of coins, such as silver sycee and ingots of ancient China, pre-second world war Hong Kong coins and gold coins. 'Coins produced in the early mainland years and commemorative coins produced in 1979 are of high numismatic value today.'

From an investor's point of view, the value of a coin depends on a combination of factors including rarity, quality and market demand.

According to Cheng, only coins produced in the early years, from Hong Kong or the mainland, have an investment value. 'The older the coins, the more precious they are, and those ancient coins from old China, such as those from the Ching dynasty, can command a high market price,' he says.

Rarity determines the value of coins and the rate of their appreciation in value. 'Rarity is an important aspect to consider if investors want to collect coins from the contemporary period,' Cheng says.

He cites, as an example, a 5 HK cents coin made in 1964 that is now worth HK$1,000 simply because there were only 20,000 coins produced that year. Another example is a well-preserved, uncirculated 10 cents coin from 1980 which is now worth several thousand Hong Kong dollars.

'The number of coins produced varies from year to year, and people should pay attention to years when production volume was low,' he says.

The strong demand for Chinese coins by far surpasses their supply across the border, and that is continuing to fuel growth of numismatic trade in Hong Kong and the mainland. 'In other countries, for example, if 5,000 coins are made, there may be only 1,000 people who want them. Whereas in China, they make 100,000 coins and there are 200,000 people who [will want] to collect them,' says Cheng.

The value of a coin also depends on how well it is preserved and whether it has been circulated. Investors and serious collectors consider only coins in their collection that have never been circulated.

Grading is an essential step to determining the quality and value of a coin. Collectors and dealers across the world benchmark the value of a coin based on the 70-point Sheldon Scale which determines the condition of the coin, with one point denoting a worn and damaged coin and 70 points a perfect, uncirculated item.

Cheng advises people to take extra care when investing in coins as counterfeits of rare and ancient coins have become rampant in recent years. To have their interests protected, Cheng advises investors to consider buying coins through an auction or reputable coin dealers.

Auctions are an important platform for investors to enhance their numismatic knowledge and increase their experience in this field.

Many auction houses require coins to be authenticated and graded by internationally recognised third-party certification service providers, such as the Numismatic Guaranty Corporation and Professional Coin Grading Service, before they go to auction.

'The third party certification service provider takes away all the risks and guarantees the authenticity and condition of a coin,' Chou says. 'Graded coins are mounted in transparent plastic holders to protect them from deterioration and preserve their value. When you buy a coin in a holder, you can be assured of its condition, so you will have the confidence in buying it without even looking at it if you bid online.'

Coin auctions are active in Hong Kong and the mainland. According to Chou, there are six to eight auctions in Hong Kong and another 10 to 12 taking place on the mainland every year.

The tally through auctions in Hong Kong amounts to US$10 million to US$15 million a year while in the mainland it can exceed US$25 million every year.

For those who do not have the money to buy rare coins at auction, Cheng suggests buying uncirculated coins and notes from banks which are less expensive and hold greater potential for value growth in future.

Commemorative coins made from precious materials such as platinum and gold are also excellent commodities for longer-term investment. Cheng says a set of Chinese zodiac gold coins produced in Hong Kong from 1975 to 1986, with valued at HK$35,000, is now worth HK$60,000.

Commemorative coins in Hong Kong and the mainland are usually made from gold and that is why a lot of people like collecting them, he says, adding that gold coins have a higher premium value due to rising gold prices on top of their numismatic value.

'Try to buy coins in their best condition and those that arouse your interest,' Chou says. 'Investors should also pay attention to the track record of price performance, compare with similar coins and look at their performance over a long period of time to understand the market situation. Coins with the best track record of performance in an auction have the highest level of preservation and the greatest potential for appreciation.'