HK property is facing significant challenges, in the new reality of being increasingly viewed as 'another Chinese' city. Will this mean prices will fall more than its brethren in the north (or rise less if market turns up) henceforth? We look into a number of factors that influence the outcome of this interesting investment dynamic, perhaps starting with the bad news first: 1) Chinese outbound tourists bypassing HK (bad)? As more relaxations are introduced/restored for visa free entry to global destinations (right column in table below), PRC tourists may bypass HK even more and head for exotic climes directly:  This trend of disintermediation, is also manifesting with more overseas countries given visa exemptions for visiting China (left column above), a factor further compounded by increasing flights from gateway PRC airports to overseas cities, reducing the hub role HK has long come to enjoy. 2) Rising retail standard + cheap RMB => surging northbound HK shoppers (bad) As amply illustrated in article 1 below, increasingly sophisticated retail offerings in PRC cities, more spacious physical hardware, (sometimes) better services, and of course cheaper cost is now triggering a new phenomenon where HKers go spend weekends in SZ for leisure and even for grocery shopping. In office space alone, more companies may be tempted by the now Grade A spec but much more affordable occupation costs up north:
HK office costs are still 3x prime SZ equivalents, which coupled with cheaper labour, may entice increasing numbers of businesses to set up north of the border - especially if travelling on the High Speed Rail, one can be in Futian from Kowloon West in a matter of 14 minutes, on fares (book yours here) cheaper than the cost of a cup of Starbucks ... It is worth noting also that occupancy costs fell across the board in the China/HK markets in Q4 23, compared to mostly rises in other global cities - showing how weak the domestic economy was then, and why the Chinese govt had to pump prime to save the property sector in recent weeks. 3) PRC rate cuts vs Fed rate hikes (bad) We have long maintained that wars and deglobalisation will only worsen inflationary pressures, and that this would leave little to no scope for rate cuts by the Fed:
What's more, the still high real interest rates in China allows it ample further scope for credit easing - some 150bps vs US, and nearly 280bps vs UK):
The conclusion of this rate trend divergence is best illustrated in the chart below:  Whenever HK rates hike less than PRC rates (green arrows pointing up, eg 1992, 2006), HK prices tend to rise much faster (red arrows up). The reverse is the case when HK rates rises more above PRC rates - which is where we are now - prices underperform SZ (eg 1996, 2013 to date). With the rate picture increasingly looking like HK rates staying high while China cuts further in the coming year (rightmost green arrow above), HK residential premium over SZ will likely shrink further in the coming two years. 4) Facilitating Southbound flows (good) The HK govt has been tapping into the rise in PRC wealth and talent by attracting them to settle in HK (article 2), but this is not radically different from some other immigration schemes already in place, and perhaps does not have as strong an impact as in earlier years. Similarly, attracting more southbound shoppers is nearing its potential (we already have 49 cities on easy travel arrangements, see article 4), and thus will unlikely result in any quantum leaps with further relaxations. 5) Higher SZ base good for higher HK too (good) As can be seen below, the premium in HK prices remain quite substantial over SZ for comparable luxury estates (Residence Bel Air in HK vs Seaworld Shuangxi Garden in SZ):  Whilst global comparison suggest that our current 120% premium may be too high - eg NYC Midtown is 50% premium over San Fran, and 63% premium over NYC Downtown - perhaps the shrinkage of the HK-SZ premium is largely done. Hopefully SZ price increases will do most of the catch up work rather than even deeper HK price drops... Looking forward, we think a combination of the two remains the most likely scenario; here the Price-to-income ratio trends suggest that SZ prices will improve by some 12% in the coming year or two whilst HK might see a larger 30% correction. For HK, the bulk of the improvement will have to come in price correction rather than income growth:  6) Yields already safer than many global cities (good) A saving grace for HK at least is that its real property yield is already quite 'reasonable' when viewed in the context of real property returns:  Above table is updated to December, showing that high inflationary pressures in places like Tokyo and London is destroying returns on rentals, whilst both SZ and HK sit reasonably happy in positive territory near the top of the pile. Generally high real return markets are more sustainable pricewise than -ve yielding ones. The higher nominal yield in HK (3%) also means that the higher interest rates here in the longer term will make for a healthier market when SZ's paltry 1.4%:
7) final technical look - SZ might do better medium term? On a long term technical perspective, SZ could continue to play catch up, but we await price action to give the next signal (either pierces the green support or breaks out of the blue resistance) before jumping into investment action. The answer might show itself by as early as mid-2024:
Given various headwinds in primarily geopolitics, perhaps investors are best to diversify into commodities and low conflict risk jurisdictions, exactly what we have been doing for the past 2-3 years... ==================Article 1================== Hong Kong vs Shenzhen: a day of food, drinks, sightseeing and leisure compared – how much cheaper can the mainland Chinese city be?The recent jump in people heading from Hong Kong to Shenzhen at the weekend suggests you can enjoy a lot more for much less in the mainland Chinese city... ==================Article 2================== Facilitation measures on two-way flow of high-end talents within the GBAThe Hong Kong Special Administrative Region Government and Mainland authorities have been exploring means to further facilitate the two-way flow of talents within the GBA, including “northbound” flow of non-Chinese Hong Kong residents.... https://www.info.gov.hk/gia/ ==================Article 3================== China cuts 5-year mortgage rate by record margin to aid property sectorThe People's Bank of China lowered the five-year rate to 3.95%, from 4.2%, marking the first reduction since last June... ==================Article 4================== 消息指中央同意擴大自由行來港 有議員料納入更多二三線城市現僅49個城市居民可自由行來港 部份省份無份原文網址: https://www.hk01.com/article/ English Google translate here. |
2024年2月23日星期五
Will HK fall more than SZ? 20240222
2024年2月15日星期四
Crypto - Is it too late to invest already? 20240215
As the relentless march continues (BTC crushed through the $50k resistance and closing above it yesterday), those who are not fully allocated to crypto may start having the usual FOMO (fear of missing out). We will look at the issue in a little detail in this email, and ask whether it is still not too late to chase...
Recent ETF trigger may drive price up more
The recent spate of ETF launches did indeed have a meaningful price impact, as we already topped 70,000 BTCs bought by various funds as of 3 days ago:
Chart 1: Net Bitcoin ETF Flows |
In fact, the increasing realisation that BTC is the new gold which is not easily stopped at customs check points is probably why the BTC inflows were funded by, amongst others, gold outflows:
Chart 2: ETF Aggregate Flows Since Bitcoin Spot ETFs |
The run, however, is not just in BTC, but in the crypto complex at large - if you look at the top 15 coins (+ the 3 top stables), most were rising on the day, 7-day, and 30-day horizons, often at accelerating paces:
Table 1: Current crypto price |
So how much is now owned by funds and how much by other entities? here is an estimate which suggests institutionalisation is only beginning, where funds ownership is just a tiny fraction (the green area most likely includes the GBTC trust already):
Figure 1: Bitcoin Mix |
Another facet of institutionalisation is how off-ramping is now finally being implemented at a large scale, as Visa the credit card company has also started taking BTC and crediting holder card account - this will finally make spending BTC a reality (not solely an investment vehicle)! More details are in article 2 below.
Is Halving as potent as touted? We think not
Some maximalists keep touting the upcoming Bitcoin halving as a trigger of a next run, but is that indeed the case? Halving describes the protocol phenomenon where after a certain number of blocks, the reward to miners (ie maintainers of the blockchain) is halved, here is a visual representation of the last 3 incidents and the upcoming one as well:
Chart 3: BTC Daily Issuance, supply, and halvings |
We believe the halving may have less to do with price rallies than the more important network effect - where more adoption increases the value of the network (of users) and thus the price of the commodity that is the subject matter of the network. In fact, as the number of coins in circulation increases and the halving reduces new supply, the proportional impact of each halving also falls, as shown in the table below - where the last halving over its 4-year period had a 8% impact on supply, but the upcoming halving sometime in mid-April will only have 4% cumulative effect:
Table 2: BTC halving |
We reckon that the more important indicator for coming price action to be on how fast the network effect spreads, which is now indeed taking off given wider institutional adoption. Our technical estimates put likely BTC prices in 3 likely levels:
a) almost there already - $60k by March 2024 (mid blue dotted line);
b) in six months' time - $190k in Aug 2024 (top red dotted line); and
c) blue sky (?) next top - $1m sometime in Q3-Q4 2025.
These are shown here:
Chart 4: BTC price log-log chart |
So perhaps you have our answer already - It is not too late to jump onboard this up cycle. In fact, just updating our usual Google search chart, you can see that the search frequency of key crypto terms remain well down from the previous two peaks in Jan 18, Apr 21 by >80%:
Chart 5: Google Search |
We would argue that another trigger to prompt more people jumping on to crypto might be govt's desperate moves to join the game through their CBDCs (central bank digital currencies) - because only by forcing people to ditch their paper notes can they flush out the money under the mattress. But what this might do instead is people sell the bank notes and buy decentralised, permissionless, and open source private coins instead...
To end, we present an updated 2-year chart of our managed strategy:
Chart 6: Core performance since 2022 |
=====================Article 1====================
The Globalists Want CBDCs in 2024… What Really Comes Next Will Surprise Them
There’s an excellent chance governments worldwide will soon force their citizens to use central bank digital currencies (CBDCs).
CBDCs enable all sorts of horrible, totalitarian things.
They allow governments to track and control every penny you earn, save, and spend. They are a powerful tool for politicians to confiscate and redistribute wealth as they see fit.
CBDCs will allow central banks to impose deeply negative interest rates, which are just a euphemism for a tax on saving money
Governments could program CBDCs to have an expiration date—like some airline frequent flyer miles—forcing people to spend them, for example, before the end of the month when they’d become worthless.
CBDCs will enable devious social engineering by allowing governments to punish and reward people in ways they previously couldn’t.
...
CBDCs are, without a doubt, an instrument of enslavement. They represent a quantum leap backward in human freedom.
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That’s where Bitcoin comes in.
Is Bitcoin the Antidote to CBDCs?
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CBDCs are going to introduce and familiarize people with using digital currencies. Then, it’s only a matter of time before they discover Bitcoin.
CBDCs and Bitcoin share some characteristics. For example, they are both digital and facilitate fast payments from a mobile phone. But that is where the similarities end.
The reality is that CBDCs and Bitcoin are entirely different in the most fundamental ways.
You need the government’s permission and blessing to use a CBDC. With Bitcoin, nobody can be prevented from using it.
Governments can (and will) create as many CBDC currency units as they want. Bitcoin is totally resistance to debasement. There can never be more than 21 million BTC.
CBDCs are centralized. Bitcoin is decentralized
...
In short, CBDCs are a pathetic attempt to compete with Bitcoin. They are a desperate, last-ditch effort to keep the fiat currency scam going—a Hail Mary.
CBDCs make an inferior form of money even worse, but at the same time, they are an excellent Trojan Horse for Bitcoin.
...
That’s how, contrary to conventional wisdom, CBDCs could be an enormous catalyst for Bitcoin adoption.
Historically, Bitcoin’s biggest moves to the upside happen very quickly… and the next big move could happen imminently.
...
=====================Article 2====================
Visa enables crypto withdrawals on debit cards in 145 countries
MetaMask users can now sell crypto directly to a Visa card, which eliminates the need to use centralized exchanges.
Global payment giant Visa is doubling down on cryptocurrency adoption by enabling another method to exchange crypto to fiat currencies without using a centralized exchange.
Visa has partnered with the Web3 infrastructure provider Transak to introduce cryptocurrency withdrawals and payments through the Visa Direct solution, the firms announced on Jan. 30.
The new integration allows users to withdraw cryptocurrencies like Bitcoin directly from a wallet like MetaMask to a Visa debit card. Available immediately, the integration enables one to exchange crypto to fiat and pay at 130 million merchant locations where Visa is accepted.
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The partnership allows users from 145 countries to directly convert at least 40 cryptocurrencies to fiat without relying on centralized exchanges. Some of the supported countries include jurisdictions like Cyprus, Malta, Singapore, Turkey, Portugal and the United Arab Emirates, according to Transak's global coverage page.
...
One of the world’s largest companies in the payments industry, Visa has been actively exploring the use cases of cryptocurrency in recent years. In 2020, Visa made a major move into crypto, by partnering with the blockchain firm Circle to support the USDC stablecoin on certain Visa cards. In September 2023, Visa rolled out support for USDC payments settled on the Solana blockchain as it continued to expand the support of the stablecoin.