Oxstones Investment Club™You may not be entirely sure of Hong Kong’s status. Is it a country or a city, and why is it so important? To clarify, Hong Kong is a small, autonomous territory of China. It is one of the most densely populated areas in the world, with 6,300 people per square kilometre. While most of its 7 million citizens are Chinese, there is a significant expat population of approximately 700,000.
Hong Kong has an interesting place within the global context. Due to its size and status, one would expect it to have little importance. But Hong Kong is well-known to be one of the biggest financial hubs. Its economy is rated as the world’s most competitive, it ranks within the top 10 GDP per capita, and is the freest market economy in the world. This is in part due to economic freedom, free trade, low taxation, and virtually no public debt.
With such a strong economy (albeit a small slowdown in 2016) and status as a financial hub, you are probably considering investing in Hong Kong. Here’s what you need to know, to start making money from this lucrative city.
The Hong Kong property market
Property in Hong Kong is the most unaffordable in the world. A 120 metre squared apartment can cost 3 million US dollars (although in recent months prices have dawn back a bit).
So why would you consider buying property in Hong Kong?
One major reason to invest in the Hong Kong property market would be to make money from renting. However, until recently, rental yields have been surprisingly low. Some landlords are happy just to break even.
Furthermore, the Hong Kong property market is very volatile. Its shifts are often quick and unexpected, while maintaining a high upward slant.
But in 2016, property prices have been falling. The residential property price index has dropped 7.31%, and some analysts expect it to fall 20% by 2018. While you might want to avoid investing just yet, it would be wise to keep an eye on this market as it will eventually turn around. It will be a good opportunity for smaller investors to get their foot in the door.
The Hong Kong dollar
The Hong Kong dollar (HKD) is the 13th most traded currency in the world. The USD to HKD exchange rate is pegged in a narrow range, meaning that while investors are unlikely to make money trading the pairing, the currency faces very little volatility.
However, maintaining the peg has not always been easy, with the HKD on occasion facing significant losses. The peg is not guaranteed to last in the long-term, so keeping track of it is a good idea for those interested in Forex trading.
The pound is not pegged to the HKD, and the GBP to HKD exchange rate has fluctuated from HKD13.2 for GBP1 in mid-2014, to its current value at around HKD10.2. Forex traders might consider this pairing as a useful investment, especially with the pound stuttering.
The Hong Kong stock exchange
The Hong Kong stock exchange (SEHK) is the 4th largest in the world. It is an investment hub, with huge Chinese investments flowing in. It should therefore be a major consideration when choosing to invest in Hong Kong.
Some of the leading Hong Kong companies you can invest in are:
- China Mobile Ltd: the state-owned telecommunications company is listed on the SEHK, and is the market’s biggest company.
- Cnooc Ltd: China’s largest producer of offshore crude oil and gas.
- Hutchison Whampoa Ltd: a massive investment holding company based in Hong Kong.
How to invest
If you choose to invest in Hong Kong, you need to go about it the right way to make the most out of your money. Unless you are living there, you will be trading your currency for the HKD on a regular basis. And an international money transfer to Hong Kong can be somewhat expensive expensive (but doesn’t necessarily have to be).
The most useful hack is to go through foreign exchange companies, rather than the banks. Banks charge huge fees and will always give you an unfavorable exchange rate. The difference in exchange rate with the mid-market rate is a made up construct – a clever way to hide extra fees.
Foreign exchange companies will charge much lower fees, as well as give you the best possible exchange rate. They also offer ways for you to set a consistent rate, so that you’re not tied to the market’s volatility.
Hong Kong is still a great place to invest
There are many ways to invest in Hong Kong, including property, foreign exchange, and the stock exchange. Hong Kong is the world’s most competitive economy. This alone should lead you to consider your investment opportunities there. While you’ll have to regularly conduct international money transfers to Hong Kong, you can save on fees by going through foreign exchange companies.
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