Honey I blew up my windfall on the wrong Brexit bet
Colonial hangover blurred the fine line between safe investment and speculation for HK investors
The king is dead, long live the king. Nearly two decades after Hong Kong’s very own Brexit, the city’s elite continues to be just as deluded by colonial might. Just ask George.
My accountant friend made some embarrassing losses after Britons voted to leave the European Union last week. Embarrassing not in terms of the size of the loss, but in how it happened.
Wind the clock back to 9pm Hong Kong time on June 23.
The Brexit referendum had been going on for a few hours. A private banker rang up George and offered to settle with him his bets on a stronger British pound. The trades would be completed in London and the bank would shoulder all the cost.
An affirmative answer would have led to a double digit return. But George chose to decline the offer and instead brought more pounds from London.
“When a foreign bank was terrified enough to try to buy me out, I was more than convinced that the ‘Bremain’ would win,” said George.
He was not alone. “About 60 per cent of my clients defied my advice to sell that evening,” another private banker recalled. Some of the city’s tycoons are understood to be in the same league.
On hindsight, they may appear greedy or reckless. Yet, to many of the Hong Kong elites, stocking up on pounds is like buying cans and cans of luncheon meat. The bets may be expensive, but never stupid.
After all there are the Canary Wharf apartments, London hotel rooms and Lake District mansions, or elite schools to pay for.
George started investing in pound derivatives in March to lock in the £40,000-a-year tuition fee for his two daughters in a prestigious boarding school. By that fateful June evening, his hedging bet ballooned into a speculation that could sponsor the schooling of half a soccer team.
George was no hot head. He is an auditor who has witnessed the humbling of many stalwarts in the 1998 and 2008 financial crisis. He knew the importance of discipline.
Yet, he was lured by the dirt cheap credit offered by the bank that allows one to bet US$10 with a dollar of their own money as well as the yo-yoing of the British currency that rewarded him well in the past.
Deep down was his faith in the “special” knowledge of Britain that cannot be found in any other city; or should we call it the colonial hangover.
Many like George have spent sometime in England either as an undergraduate, postgraduate or an employee. Those ties remain even when they are back home. They own a piece of the British economy either as a landlord, a patron of a student or both. Many continue to work at firms with British investment or employees.
They have monitored the country’s political and economic development with closeness no less than that of Beijing. They also studied the Brexit debate much beyond the media.
George has discussed the referendum with his British colleagues over beer; studied the mock poll result in his daughters’ school; and read in details the odds offered by the book makers. Never did he consider his sample biased by economic class.
Many could not believe the “pragmatic” British would dare to exit. They held on to their “special” knowledge beyond the last minute – the announcement of Sunderland’s poll result in the morning of June 24. The northeast city was always seen as a pro-EU stronghold because quitting would mean a dire threat to jobs at the local Nissan plant. Yet it voted 61 per cent for Brexit. It was the first win for ‘Leave’ on the referendum night. The news sent the pound and global stock markets crashing.
Instead of retreating, George brought some HSBC stocks for the 8 per cent yield, considering Sunderland an exception.
At the same time, a private banker spent ten minutes failing to convince her brother to sell his pound investments and enjoy a 3 per cent gain. “He insisted that the British weren’t dumb,” she said.
One would think a dear lesson has been learnt; not exactly. A buddy of a major tycoon was criticising British prime minster David Cameron for picking a wrong timing for the referendum. Britain has changed and some still don’t got it.