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Jake's View
PUBLISHED : Sunday, 10 November, 2013, 4:31am
UPDATED : Monday, 26 May, 2014, 5:53pm

London property not best investment for Hong Kong Monetary Authority

"London has proven to be a strong, liquid real estate market with robust demand for grade A office and retail assets over different market cycles."

Hong Kong Monetary Authority, November 7

And so saying, the HKMA announced that it has jumped into the London property market by paying HK$2.5 billion for a joint venture with Great Portland Estates to build a Mayfair office and shop complex.

You may have noticed the abundance of London property ads in this newspaper recently. They all look much the same - an arrow pointing to a dot somewhere on an aerial photo and a banner above saying, "There, that's us, only 20 seconds from Buckingham Palace, 15 from Regent Street and 10 seconds at most to get to Harvey Nichols. Get one now, cheap at £10 billion (HK$124.6 billion) per shoebox."

And from all over Russia, Saudi Arabia and inner China the money comes pouring in. If that money is parked in London property that money is safe. Britain doesn't like whistle-blowers. It has just had all three of its spy agency chiefs tell parliament so.

But why does the HKMA wish to set its own feet in these rather dubious tracks? It has nothing to hide. It doesn't need a bolthole for a quick run in case of regime change. It can park its money in perfect safety anywhere in the world. Why join the greasy lot in this queue, then?

I shall tell you why. It is because the HKMA doesn't know what it is doing.

First of all, it has too much money to do it with, almost HK$3 trillion in total assets and HK$1.5 trillion in net assets on which only the Hong Kong public has any call. Managing that much money would be a daunting task for any fund manager. Wisely, the HKMA has in the past mostly put the money in the most boring bonds it can find or let others run it.

But its executives have never favoured a passive role. With so much money, they would like to be real gods of the market whom brokers worship and business newscasters speak of in awe. As a starter they have set up a playschool called the Hong Kong Mortgage Corporation.

It has drawn mostly laughs. It has played in taxi licence speculation, Korean property bonds and other peripheral games and mostly keeps going by occasionally begging real bankers for a few crumbs from their table.

And now we're off to London through the HKMA itself. I am, of course, not privy to the deliberations behind this but, as these people are civil servants, I am sure they went through all the proper processes, hiring the best consultants at every stage.

This is a bad idea in investment. Consultants are paid fees, not percentages of the profit. They get their money whether the investment idea later proves bad or good and all that concerns them is that the idea not look bad at the time. They therefore invariably take the conventional view - do whatever everyone else is doing.

Now here is Jake's No5 Rule of Investment: the only time the herd is all headed one way is when it is headed to the slaughterhouse.

I cannot be absolutely sure of an imminent collapse in the London property market, of course, but the odds on a good solid crash have certainly become better if the HKMA has decided to jump in. Some people have a knack for joining a bull market at the top. You get a feel for them if you spend any time in the investment business and the HKMA certainly has that feel about it

Meanwhile, with the fees for all the consultants, survey agents and due diligence reports, I doubt there will be much of a return on this venture.

And could we be told, please, if the HKMA has agreed to give its joint venture partner any call or put options on this project? We would not want to be surprised by news of such things later. Just asking in the cause of transparency.


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HKMA in London property project
8 Nov 2013 - 1:57am

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This article is now closed to comments

"It is because the HKMA doesn't know what it is doing."
This pretty well sums up HK's government.
By the way:
the government bail outs of the banks with taxpayers' money following the global economic tsunami of 2008 proves how broken the monetary system is. The banks gambled by reckless lending to people who could not repay, then when it all goes wrong, who pays? The taxpayer.
Why? To prop up the Banks' asset portfolios.
Iceland got it right by nationalizing the banks and kicking out the banksters. Banks need to be regulated like boring utilities.
The fundamental truth about capital markets is that they thrive on confidence and panic on fear.
In the global economy a price has little or nothing to do with the intrinsic value of a service, commodity or product, which was traditionally associated with the earnings of the average household, but isn't any more. It has become purely speculative because of the machinations of those who control or manipulate the market. This is even more true now that capital has no geographical or political constraints.
The global economy is supported by an over supply of money because the FED is printing US dollars as if they are going out of fashion and keeping interest rates low. This is fuelling support for inflated property prices because the banks are s c r e w i n g the little person while at the same time peoples' incomes are not increasing in line. Why?
The judgment of the HKMA is just as bad or good as any other market analysts. Most of them get it wrong most of the time for the simple fact that the brokers and bankers have an interest in the market going up, which clouds their judgment, coloured by greed.
The HKMA's capital fund is so huge its investments can move a market upwards when it buys and downwards when it sells.
I note you do not provide any statistics to back up your argument.
So Jake, why aren't you the most successful broker in this dubious business?
Let's look at some real issues.
Are there any worthwhile projects in HK for HKMA to invest?
If not, does it mean HK is going down the tube fast?
How much could our public savings from past surpluses and Exchange Fund buy us in a catastrophe? They are only sufficient to protect our monetary base, which is about US$160B (HK$1,245B) -- including Certificate of Indebtness, EF, etc. . Our M1 aggregate is about $505B.
If HK nut cases and hate-China saboteurs succeeded - and I am not Chicken Little who says this will happen - in taking over government and staged endless demonstrations against China like those at Tahrir Square, we would all be up Sh-its Creek. Remember our savings could last only 7 months if income (GDP) dwindled to zero. In a pinch, a rich city is not as safe as you think.
The destabilization of HK and confrontation with China is the real issue. In a catastrophe, no one could save us except China. Just think Monaco and France.
Maybe we should all start looking at the real stuff. The trick is how to take the mind of HK morons off the perceived tyranny of China and our lack of freedom.
Brutal suppression and imprisonment are of course out of the question. Emperor Constantine yielded by his conversion to a cult and thereby preserved the Roman Empire. Since then this Cult has become the best success story of Western Civilization.
Which is the way out for HKers? Are we being "tortured" now just like in Sartre's Huis Clos?
My guess: you’re 55% correct
that “HKMA doesn't know what it is doing”
Despite a master’s degree from a reputable scholarship
the standard of a bank economist was such that
his boss kindly wondered how he had earned his graduate degree
In reply, colleagues who had to suffer his gibberish exclaimed:
We couldn't understand how he had graduated from hi school
After several years as a charity case in a bank’s research department
he became a manager of that august institution
Though we had a better than Greenspan at the helm
the profession was shrouded in muddled hypocrisies
so your observation is probably 55% correct
We can’t underestimate British carpetbaggers’ persuasiveness
But it’s quite clear that the UK is going down the drain
North Sea wells and offshore USD operations are dwindling
For an enteratining discourse, refer to J Rogers’ Street Smart
HKD2.5 billion is spare change for the city (HK)’s treasury
There’s a 45% chance that this is a charity case.
"HKD2.5 billion is spare change..." This is what stands out when I read JVK's piece.


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