Solid assets draw the dollars

PUBLISHED : Sunday, 28 November, 2010, 12:00am
UPDATED : Sunday, 28 November, 2010, 12:00am

The market has not lacked winners this year as risk assets and safe havens alike have taken turns racking up gains while the global economy see-sawed between signs of recovery and fears of relapse.

The one constant this year has been that cash is trash. Minuscule interest rates combined with rising inflation have eroded the value of money left in the bank. And Hongkongers have had to bear the additional burden of holding a currency fixed to the sinking US dollar.

'Right now, holding cash is painful,' said Ricky Tam Siu-hing, the chairman of the Hong Kong Institute of Investors. 'You have to buy something that can maintain its value.'

That has encouraged investors to take bets and play the market. Buying interest also surged since September when the US central bank indicated it was sticking to its loose monetary policy. Daily trading turnover on the Hong Kong stock market has topped the HK$100 billion threshold 17 times since the start of September after doing so only once in the first eight months of the year. The inflow of liquidity has chased traditional investments like stocks and property.

Investments in the yuan have also picked up as Hong Kong expanded its role as the mainland's overseas currency settlement centre.

Meanwhile, gold has regained its lustre. The precious metal has appreciated largely because investors have been looking to reduce exposure to the US dollar, which has weakened 9.5 per cent so far this year up to Thursday against the Japanese yen.

The sliding value of the greenback has also been a boon to tangible assets like wine and fine art. Demand has picked up as well for these and other luxuries amid a growing wealth effect in the region.

'Increasing demand from China, both in terms of money available to buy art and also the desire of Chinese collectors to buy quality items at the higher end of the value chain, means the arts and antiques sector is set to grow further in Hong Kong,' said David Faulkner, chairman of the Royal Institution of Chartered Surveyors.

Just like the more traditional investment markets, however, buying into alternative assets carries its own risks and rewards.

'If you are using the auction sale price for reference, there may be some [difficulties],' Tam said. 'The price will really fluctuate so sometimes you may not sell at the price you want.'

And even though most markets have tilted upwards across the board this year, there have still been bumps in the road. The Hang Seng Index plunged 11.8 per cent, for example, in a span of five weeks ending in May.

So what were the best investments this year? We take a look at seven major asset classes below.


While stocks have been on a tear over the past several months, the year-to-date return on equity investments has been limited by market malaise which lingered through the first-half of 2010.

The Tracker Fund of Hong Kong, which is designed to follow the performance of the Hang Seng Index, has climbed 4.6 per cent so far this year. Commerce-and-industry-related stocks have led the way as this sub-index jumped 10.6 per cent.

The H-share Index has not fared as well, down 0.29 per cent so far this year. Mainland-related stocks have been weighed down by concerns about potential policy risks as the government tries to rein in inflation and cool overheated asset markets.


Property prices surged this year as investors took advantage of historically low interest rates and poured money into housing, lending further credence to the saying 'safe as houses'.

Values have jumped so much that the local government has unveiled numerous measures to discourage lending and raise restrictions on home buying. While that has cut into transaction volumes recently, the long-term outlook for property prices remains rosy given buoyant demand and fund flows from overseas.

Prices have already racked up big gains this year. The transaction value of an 818 sq ft flat at the Central Park residential complex in Kowloon's Olympic Station area jumped 16.1 per cent to HK$7.8 million in just nine months to the beginning of this month. In the same district, an 870 sq ft flat at Island Harbourview appreciated by 14.4 per cent to HK$7 million, according to data from Land Registry & Midland Realty.

The Hang Seng Property Index, which measures the stock performance of blue-chip local developers, is up 5 per cent so far this year.


The yuan has barely budged this year for all the attention it has received, advancing only 2.3 per cent against the US currency so far.

Upside in the yuan is almost unquestioned, given the mainland's robust economic growth. But Beijing has insisted appreciation take place at a measured pace so as not to shock the domestic economy.

Returns on investments in the currency itself have also been constrained by low interest rates. In Hong Kong, most lenders offer less than 0.75 per cent interest on long-term yuan deposits.

Returns do not seem set to pick up anytime soon either. The mainland has continued to resist international pressure to adjust its currency and Hong Kong's interest rates should remain low, since they are influenced by rates in the stagnant US economy.


Gold has been one of the top investments to date amid surging demand for the precious metal as a hedge against rising inflation and a weakened US dollar. Its spot value has climbed 23.8 per cent so far this year to US$1,367.50 per ounce at one point on Friday. It is set for its 10th straight yearly advance and its fourth-largest in two decades.

Despite the conventional wisdom that producers are a good way to piggyback the gold wave, Zijin Mining, the mainland's leading gold producer, has not been a useful play on the appreciation. The miner has been embroiled in environmental problems, including a toxic waste leak from its operations and a dam collapse. Its shares are down 3.5 per cent so far this year.


While investors may have been tempted to drink their pain away at the height of the financial crisis, wine has since become a more popular investment in its own right.

Just like gold, this tangible asset has been sought after as a hedge against the erosion of the value of cash. Analysts say it has also benefited from a pick-up in demand in emerging markets, which have witnessed a growing wealth effect.

The Liv-ex Fine Wine 100 Index doubled its rate of increase from 2009, climbing 31.9 per cent by the end of October. The benchmark comprises high-end wines, mostly from the Bordeaux, Burgundy, Champagne and Italian regions.


Fine art prices jumped this year, rebounding from a major drop in 2009.

The underlying monetary value of the AMR Art 100 Index's high-end price bracket has risen 44.4 per cent this year up until end-October. Gains were less pronounced in less valuable segments of the market. The benchmark index's low-end bracket is up 5.1 per cent so far.

The rebound has been a welcome change for art investors since the high-end bracket of the benchmark plunged 34.4 per cent last year and the low end dropped 31.5 per cent.

The AMR Art 100 Index measures paintings from key European and American artists and is published by Art Market Research.


Many niche luxury markets have also heated up as low borrowing costs freed funds for discretionary purchases. The Forbes Cost of Living Extremely Well Index, a barometer of the value of goods and services catering to the super rich, edged up 1 per cent in the year ended August 2010.

A seven-passenger Learjet 40XR cost US$10.6 million this year, up 15 per cent from 2009. A Steinway & Sons concert grand piano gained 5 per cent to US$123,800. And a sterling silver flatware set from Reed & Barton rose 14 per cent, according to Forbes.

Additional reporting by Peggy Sito