USDC depegging crisis - More a Debt/Banking/Liquidity Crisis than a Crypto one 20230313

Given the importance of the subject matter and its ability to impact everyone's financial arrangements in the coming years, we are putting the below internal client communication out in the public domain, hoping to contribute to clarify what actually happened in the liquidity crisis initially couched as a crypto crisis.

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The depegging of the USDC stablecoin over the weekend was a big event, as it could have shake the confidence in what is deemed the safest of all the stablecoins. There was quite a roller coaster ride in both USDC and DAI (which holds some USDC as its reserve backing), which now seem to be all good again after govt guarantees were rushed out late Sunday:

USDC touched as low as 0.88 early Saturday

Crypto banks - the Sudden Wipe Out Syndrome?

Whilst it is easy to characterise the incident as another 'nail in the coffin' of cryptos, a look under the hood reveals that this is a banking/liquidity problem - deposit taker (or SVB) going bust and not the stablecoin operator, who has barely jumped ship from another bankrupt bank (i.e. Silvergate Bank) some 10 days ago (see details here)!

What seems odd though is that these close banking allies of the crypto ecosystem seem to be going under eerily close together - Signature Bank also got taken over by the govt (article 1) citing liquidity issues also.

With these entities now killed off in short succession, some in crypto space might question could this be not random occurrences just when govts are starting to launch their own CBDCs (central bank digital currencies)? Without these on/off ramp channels, how could the crypto space continue to grow?

The 4 Hoursemen of debt apocalypse?

Irrespective of what possible coincidences/agenda against the crypto industry may be speculated, what we see in the bigger picture is that we are in the early phase of a bond default crisis that has been decades in the making:

a) ever lower record low interest rates has created bias for buying and holding 'risk free' govt bonds (sometimes mandatory, eg pension funds) that have now become toxic, especially long dated ones, thanks to the 4 massive negatives (you may call them the 4 horsemen of bond demise) that will keep bonds risky:

1) record govt debts are driving risk premium up and will keep worsening as rates increase;

2) geopolitical separation will drive deglobalisation for years to come (so no more cheap goods, which will get dearer for years to come),

3) lockdowns and net zero carbon agenda will drive higher energy costs for years to come, rippling into other costs throughout all supply chains; and

4) the war in Ukraine and likely WW3 will worsen both risk premium and supply chain disruptions

b) stuck in old theories, central banks keep hiking rates chasing inflation as it spirals out of control, creating banking/liquidity crises like the one we are seeing now - ie bank/pension balance sheets crash as bond prices collapse - resulting in solvency/liquidity concerns which lead to bank runs.

To understand how bond illiquidity and pervasive govt prescription on risk management has resulted in the mess we are now in, look at Bill Ackman's short diagnosis (article 3) or Dan Lacalle's longer missive (article 2), and finally how mobile banking + instant social media could create flash bank runs at the drop of a hat (article 4).

Seek protection in Anything But Bond/cash?

So we know this debt bust will be inevitable, how can we protect ourselves? There are several levels to position:

1) stay in the best quality and most liquid market, avoid the weaklings (eg most EU bonds/currencies, even JPY /JGBs which will suffer more in rate hike race) vs US - both cash and short dated bills;

2) park money in real assets (property/stocks/ precious metals/ even crypto) - when bond market, many times the size of equities trigger capital flights, the flood will likely be overwhelming, just buy in safe places (eg away from conflicts) or sectors that will not suffer from the cost of capital spike (eg tech);

3) more esoteric but more mobile/ alternative / off-grid assets such as paintings, antiques, etc, here is one chart that illustrates how the trend is very much underway already:

Void in crypto on/off ramping - will be filled soon?

With the pro-crypto banks now decimated, will there be a void now that prevents crypto purchases using fiat, and vice versa? That concern certainly seems valid for now, but could the clampdown be creating opportunities elsewhere, eg by a Middle East state (Dubai), China (very good strategic move if they dared, via the CNY!), that basically allow what may be an irrepressible phenomenon to grow, especially when people generally distrust the potentially tyrannical official imitation (see all the links giving reasons why CBDC will be shunned here) of the same?

Perhaps the Nigerian disastrous CBDC launch is one example:

​Nigerians’ Rejection of Their CBDC Is a Cautionary Tale for Other Countries​
​Digital-Currency Plan Falters as Nigerians Defiant on Crypto​

Just like gold's longevity in the age of fiat currencies, crypto will probably become the new digital version of gold in the CBDC dominated future...

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-----------------------------------------------------article 1------------------------------------------------------------

Regulators close crypto-focused Signature Bank, citing systemic risk

 MAR 12 20236:24 PM EDT 

U.S. regulators on Sunday shut down New York-based Signature Bank , a big lender in the crypto industry, in a bid to prevent the spreading banking crisis.

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” Treasury, Federal Reserve, and FDIC said in a joint statement Sunday evening.

The banking regulators said depositors at Signature Bank will have full access to their deposits, a similar move to ensure depositors at the failed Silicon Valley Bank will get their money back.

...

Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. 

...To stem the damage and stave off a bigger crisis, the Fed and Treasury created an emergency program to backstop deposits at both Signature Bank and Silicon Valley Bank using the Fed’s emergency lending authority.

The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 guarantee on deposits.

​https://www.cnbc.com/2023/03/12/regulators-close-new-yorks-signature-bank-citing-systemic-risk.html​

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-----------------------------------------------------article 2------------------------------------------------------------

Silicon Valley Bank Followed Exactly What Regulation Recommended

12 March, 2023 | Daniel Lacalle

<below are summary points only>

 - The Silicon Valley Bank Collapse Is a Direct Consequence of Loose Monetary Policy

- The demise of the Silicon Valley Bank (SVB) is a classic bank run driven by a liquidity event, but the important lesson for everyone is that the enormity of the unrealized losses and financial hole in the bank’s accounts would have not existed if it were not for ultra-loose monetary policy

 -  the bank’s liquidity event could not have happened without the regulatory and monetary policy incentives to accumulate sovereign debt and mortgage-backed securities.

 - The bank’s assets ...More than 40% were long-dated Treasuries and mortgage-backed securities (MBS). The rest were seemingly world-conquering new tech and venture capital investments.

 - Most of those “low risk” bonds and securities were held to maturity. They were following the mainstream rulebook: Low-risk assets to balance the risk in venture capital investments. 

 - The entire asset base of SVB was one single bet: Low rates and quantitative easing for longer. ...these were the lowest risk assets according to all regulations and, according to the Fed and all mainstream economists, inflation was purely “transitory”, a base-effect anecdote. What could go wrong?

 - Inflation was not transitory and easy money was not endless.

 - Rate hikes happened. And they caught the bank suffering massive losses everywhere. Goodbye bonds and MBS price. Goodbye tech “new paradigm” valuations. And hello panic. A good old bank run, despite the strong recovery of the SVB shares in January. Mark-to-market unrealized losses of $15 billion were almost 100% of the market capitalization of the bank. Wipe out.

- SVB showed how quickly the capital of a bank can dissolve in front of our eyes.

- SVB did exactly what those that blamed the 2008 crisis on “de-regulation” recommended. SVB was a boring and conservative bank that invested the rising deposits in sovereign bonds and mortgage-backed securities and believed that inflation was transitory as everyone except us, the crazy minority, repeated.

 - SVB did nothing but follow regulation and monetary policy incentives and Keynesian economists’ recommendations point by point. SVB was the epitome of mainstream economic thinking. And mainstream killed the tech star.

 - Many will now blame greed, capitalism and lack of regulation but guess what? More regulation would have done nothing because regulation and policy incentivize adding these “low risk” assets. Furthermore, regulation and monetary policy are directly responsible for the tech bubble.

- SVB invested in the entire bubble of everything: Sovereign bonds, MBS and tech. Did they do it because they were stupid or reckless? No. They did it because they perceived that there was exceptionally low to no risk in those assets. No bank accumulates risk in an asset they believe has considerable risk. The only way in which a bank accumulates risk is if they perceive that there is none. Why do they perceive it? Because the government, regulators, central bank, and the experts tell them so. Who will be next?

 - Many will blame everything except the perverse incentives and bubbles created by monetary policy and regulation and will demand rate cuts and quantitative easing to solve the problem. It will only worsen. You do not solve the consequences of a bubble with more bubbles.

​https://www.dlacalle.com/en/silicon-valley-bank-followed-exactly-what-regulation-recommended/​

-----------------------------------------------------article 3------------------------------------------------------------

Bill Ackman @BillAckman

...Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs). These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits. These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions. The increased demand for short-term UST will drive short rates lower complicating the @federalreserve’s efforts to raise rates to slow the economy. Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection. 

...The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk. For those who make the case that depositors be damned as it would create moral hazard to save them, consider the feasibility of a world where each depositor must do their own credit assessment of the bank they choose to bank with. I am a pretty sophisticated financial analyst and I find most banks to be a black box despite the 1,000s of pages of @SECGov filings available on each bank. SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs. ...

10:38 pm · 11 Mar 2023

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-----------------------------------------------------article 4------------------------------------------------------------

Lots of really bad takes about SVB. Let’s try and correct

...

The important question is why so many demanded their money back at once. And I’m not referring to the last two days. I’m asking about the days/weeks leading up to this last two days forcing SVB to sell securities and realize a $1.8B loss, necessitating a capital raise. Why were depositors withdrawing in big enough amounts before Thursday/Friday?

First, welcome to the world of mobile banking. Gone are the frictions of standing in line with tellers instructed to count money slowly. (Media images of lines Friday were largely gawkers)

How did $42 billion get withdrawn Friday alone without thousands in line? Answer, your phone! This is not the Bailey Savings and Loan anymore.

This should scare the hell of bankers and regulators worldwide. The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity.

Add in social media and millions get a message, like Peter Thiel telling Founders companies to pull out, or Senator Warren gloating that SI went under, and pick up their phone open a Chase account and Venmo-ed their life savings into it in 10 minutes. Instant liquidity (not solvency) crisis with everyone still in bed.

Banking will never be the same.

...

What needs to be done? Two things.

The FDIC needs to raise the deposit insurance ceiling to unlimited as they did this in 2008. Besides $250k is a made up number anyway. So make up a bigger number.

Banks need to get their deposit base to stop figuring out how to buy a 4.5% money market fund. They need to raise the interest rates they pay 3.00% - 3.50%, from 0.50%, immediately. Yes, this will kill bank profitability so expect Bank Execs to balk at doing this.

This way the public gets the message that you money is safe, no matter the bank, or the amount, and the rate paid on your money is at least competitive with other alternatives. So, do nothing.

Otherwise, if we are all waiting for the Fed to START a meeting at 11:30 Monday, hundreds of billions of deposits will have moved by phone and it will be far worse.

​

https://twitter.com/biancoresearch/status/1634885127179325440

Obesity & Ageing – where to invest for better returns? 20230310

We often hear about the challenges of ageing populations, interspersed with concerned reports about how the developed world is getting fat, with concurrent health problems… But how will these factors impact general economic performance, and along with them, investment returns? This article tries to look into the phenomena in a combined fashion and assess which countries might be potential winners if current trends were to continue…

OECD markets ageing fast, Asia peaking soon…

With the rapid ageing of the working population, the world is faced with not only declining productivity, but also increased healthcare costs. As Chart 1 shows, both Europe and N America have already seen the peak in working population ratios (purple and black lines), suggesting the prime of productivity might be over.

Chart 1: Europe/N America past peak in working age population, Asia still rising into mid 2020s

Asia and S America in the meantime are still on the ascent, with rising proportion of working age population until at least the middle of the current decade. For the most favourable demographics, Africa is the top continent, with no end in sight of the rise in workers in at least the next 30 years…

Viewed another way, the drag on the economies from rising old age is demonstrated below again with Europe having the most severe increases in aged population, rising almost 10ppts between 2020 and 2050 (Chart 2), while Africa will only see less than 3ppts in increase to a still very low absolute figure over the next 30 years:

Chart 2: Europe again heads the table of elderly population, suggesting diminished vibrancy

Older and fatter – not a favourable combination?

Another factor to gauge the economic vibrancy might be how healthy the population is at large. One of the most readily available measure in this regard is the obesity ratio by country – generally the more obese the people are, the more economically stale they may be, and more sickness prone they get. Unfortunately again, the OECD (ie Europe + US) lead the race in high proportion of obese people, as shown in Chart 3 below:

Chart 3: Obesity Rate (BMI>=30) having been rising across the world from 1975-2020 – but OECD leads by big margin

Sadly for Hong Kong, the obesity measures are surging as well, with the proportion of people over 25 on the BMI measure rising from 21% in 2004 to 30% in 2015 (last available data, Chart 4), and even the youngster population cannot escape the fate – where the rise in obesity rate is also alarmingly rapid from 16% to 20% over the same period, Chart 5):

Chart 4: Hong Kong’s adult overweight and obesity rates rose between 2004 and 2015

Chart 5: Hong Kong secondary school student overweight and obesity also surging

Work affected when more are obese

In order to establish whether the level of obesity is indeed a contributing factor to economic performance, we have looked at the pattern in Europe, where there is data for absenteeism and obesity, allowing us to establish whether these two variables are correlated:

Chart 6: obesity seems to correlate with absenteeism from work due to illness (unit: days per employee per year, 2020)

Although further studies may be needed to establish a causality, but a clear correlation exists for the European countries between high obesity rate and number of sick absences. Indeed, this conclusion is supported by other studies, such as the World Obesity Federation’s prediction that economic burden brought by obesity and overweight on the global economy would rise from 2.19% of GDP in 2019 to 3.3% by 2060. 

Avoid old and obese, prefer young and fit countries?

Combining these two variables in typical management consultant 2x2 matrix presentation, we arrive at the spectrum shown in Chart 7 – where:

• the red marks indicate countries with both old and obese populations, which are again mostly OECD countries in Europe/N America;

• while on the opposite end with green marks are countries low in obesity rates and young populations – mostly developing countries in the southern hemisphere;

• between these extremes are old and ‘fit’ populations (orange marks), dominated by developed Asia; and

• finally we have the young but unfit jurisdictions, unsurprisingly mostly Middle Eastern oil states (blue marks)…

Chart 7: avoid red and head for green countries? Or is the obesity a sign of economic success?

While we may have existing state of obesity and age as a measure, perhaps it is more relevant to see the possible trend increase in the coming years for assessing investment return potentials. And with this in mind, we have found the projected future ageing trend as well as obesity trajectories:

Chart 8: Old Age Proportion Increase VS Obesity Rate Increase in 10 years

Again, we can make similar colour based observations as follows:

• the red marks indicate countries with the highest increases in both old and obese populations, here dominated by N America countries with a strong show of the Caribbean states;

• on the opposite end of the spectrum with green marks are mostly East and Nordic European countries;

• between these extremes are ageing fast but ‘staying fit’ populations (orange marks), still dominated by developed Asia.

Perhaps the clearest trend that emerges from the above studies is that OECD countries, especially N America would see the most challenge (subject to the forecasters being correct), while S Asia and East European countries being the more dynamic jurisdictions to head for – both being developing economies. Does this suggest that the age of the emerging economies have finally arrived?

Go East and South…?

The above conclusions, coupled with the record low emerging market equity valuations vs S&P500 (as a proxy for developed market stocks, Chart 9), does make the age-health twin axis look doubly appealing for emerging market investing…

Chart 9: Emerging Market Equities vs S&P500

The author would like to thank Wong Ngai Fung Wallace from The University of Hong Kong majoring in Wealth Management and So Ka Chun from The Chinese University of Hong Kong majoring in Financial Technology for assisting in data collection, analysis, and drafting this article.

條件勝越泰 投資話高棉 20230306

本文亦於2023年3月6日在【信報】刊登：條件勝越泰 投資話高棉

近年投資泰國、馬來西亞和越南房產甚受港人歡迎，以至漸漸連柬埔寨樓市也開始受到關注。本文從經濟角度出發，嘗試分析這新投資市場的各基本因素（包括經濟增長，資金流等）；筆者認為若果當地政府能繼續創造及維持現有優勢，柬埔寨不難成為下一個越南。

柬國固投增長 尚有15年好景？

固定資產投資佔本地生產總值的比例通常在經濟起飛，國民邁向中產時加速；如果柬埔寨的未來遵循鄰國越南（【圖一】綠線：固定資產投資佔本地生產總值比例峰值約35%）或泰國（紫線：峰值為42%）的足跡，那麼它目前的26%水平（深紅色線）仍大有上升空間——或許舉目皆是的各規劃中或在建的新機場（在這只1700萬人口的國家竟在籌劃9個機場！）、新城際道路和新高速鐵路等工程正是柬國未來十數年經濟增長的引擎：

圖一：預計柬埔寨的固定資產投資增長在15年後才到頂（越南：2010年，泰國：1999年）

 

城市化剛起步 前途一片光明

在最近的柬埔寨考察中，當地大興土木的力度令人嘆為觀止，這跟2000年代初中國地產發展起飛的境況如出一轍。而事實上，中方的人力及資本可能正是目前柬埔寨城市高速發展的主要推動力。

 

然而城市化的速度與人民致富的程度有何關係？只要再以東南亞鄰國的經驗為參考，不難看出柬國的經濟將何去何從：

圖二：只要重蹈鄰國覆轍，柬埔寨經濟似將飆升

 

從上圖可作出以下判斷：

一）隨著城市化增加，實際人均本地生產總值也會上升。2010年代的柬埔寨城市化比例僅至20%，相當於50年代的馬來西亞（或更早，因上圖數據起於1964年）、60年代的泰國、和90年代的越南！

 

二）由於柬埔寨的城市發展得享來自中國的技術和資本（此乃其他鄰國當年所欠缺的），它可能起碼在2039年便達成35%的城市化率，而在此城市化水平柬國人均收入亦達應可升至越南和泰國之間（上圖藍色虛線箭頭），亦即是其實際人均本地生產總值可有每年4.8%的增長（從2021年到2039年）。

 

三）然則，如果柬埔寨能保持目前更高速的增長步伐（即與以過去幾年一樣的斜度上升——見上圖藍色實線箭頭），而非當年泰越較慢速度的平均數，那麼人均產出水平會升得更高。以此推算，當柬埔寨的城市化率達到35%時，期間的人均本地生產總值年增長率甚至飆高至8.6%水平！但值得注意，如此高的富裕程度在泰國要等到城市化率去到52%而馬來西亞更要遲至57%才出現，相信這一結果需要在最理想的環境下方可實現。

 

不論如何，柬埔寨未來增長速度大約會在4.8-8.5%之間；而此數更是實際人均本地生產總值增長率，若以本地生產總值及名義本地生產總值來計數值只會更高！

 

人口優勢　亞洲前列

鑑於柬埔寨近史，該國的人口是亞洲國家中最年輕之一，年齡中位數只為26.5歲，僅次於菲律賓的24.5歲：

圖三：柬埔寨人口年輕且增長迅速

 

該國也是東南亞人口增長最快的國家，年增長率為1.2%。令人驚訝的是，泰國現在看起來相當「中年」，其中位年齡已達39歲，且人口增長率也跌至0.2%......也許泰國不應被視為一個具高增長地域？

 

零售消費　增長迅速

隨著財富的增加，消費水平應亦步亦趨。以上文得出的本地生產總值增長預測（每年4.8-8.6%），不難推算出未來多年零售消費的增長軌跡:

圖四：柬埔寨的消費水平應跟隨生產總值穩步上揚

鑑於人均產值與人均消費這兩項函數幾乎在每一個國家都有非常高的相關性，幾乎可以肯定柬埔寨的實際人均消費在未來18年內將以每年4.6-8.2%的幅度增長（如【圖四】中的垂直橙色箭頭所示）。在投資零售物業時如再加上城市化帶來的額外複合效應，則整體市內零售總額會更高。儘管許多大型開發商正在建造可與發達市場一些超大型購物中心相媲美的新供應，如新加坡烏節路或本港彌敦道般頂級消費地段肯定亦會在金邊出現——而一早能發掘這類地點的精明投資者將來定必賺得盤滿缽滿。

 

要全面了解整個房地產市場，住宅樓價不得不知，下圖可見2019年開始價錢下調，似乎反映中國開始收水及金邊本地供應過多；之後在疫情封關之下更急挫向下，直到2022年中似乎方現見底跡象。如果過去兩年有機需求能消化不少供應，亦會對未來樓價的走勢有所幫助：

圖五：金邊樓價自疫情後調整18%，是否現已見底？

 

綜合上述，柬埔寨地產市場有強勁的宏觀因素支撐，但微觀上供求失衡將令投資成敗取決於地區及資產類別的挑選上。除此之外，該國的海外業權法規亦會為投資者帶來額外的挑戰（例如除非透過「代理人」或信託安排外，外國人不得擁有建築物地面那層的業權）。此外政治穩定亦是一個需要仔細參詳的大課題。

 

筆者特別鳴謝香港大學財富管理系王羿丰同學及香港中文大學計量金融學系梁健東同學協助收集及整理本文相關數據及圖表。

 

Cambodia investing – the next Vietnam? 20230215

After boom in property investing in Thailand, Malaysia, and more recently Vietnam, Cambodia seems also to get attention of late. As fundamentally value investors committing ahead of the crowds, we took a look at the economic fundamentals of the new destination – Cambodia has seen massive investment inflow and economic growth in the past few years, and we reckon could be a next Vietnam if the government play their moves right…

FAI – 15 years of accelerating growth to peak?

We start by looking at the fixed asset investment as a percentage of GDP – if Cambodia follows only its neighbours Vietnam (green line, Chart 1: peak FAI as % of GDP c. 35%) or Thailand (purple line: peak at 42%) then its current 26% level (magenta line) has a long way to go yet – perhaps all the new airports (9 on the drawing boards for a 17m population country!), new national highways, and high speed rails will form part of that wealth growth in the next decades:

Chart 1: Cambodia’s FAI growth has c.15 years to run before peaking (e.g. Vietnam peaked in 2010, Thailand in 1996)

Urbanisation also early days yet – huge upside almost a certainty

We were taken back by the vast amount of construction that is taking place in Cambodia in a recent research trip there – it reminds one of the buzz of property construction activities saw in China during the early 2000s. In fact the Chinese are probably THE main thrust of the current breakneck growth in both new build and regentrification construction in Cambodia.

So how does this rush to urbanisation relate to the creation of wealth for the people? We compare the past experience of fellow SEA countries to where Cambodia is now to give some context to how fast the country might grow in future years:

Chart 2: Real GDP to surge just following the footsteps of other East Asia countries

The chart above warrants some explanation:

a) as urbanisation spreads, real GDP per capita also rise, for example, urbanisation rate only reached 20% for Malaysia in the 50s (or before, earliest data from 1964 only), Thailand in the 60s, Vietnam in the 90s, and Cambodia 2010s!

b) as Cambodia's urban development gets fast tracked with Chinese expertise and capital (not enjoyed by fellow SEA peers back then), we expect a minimum milestone of 35% urbanisation rate of at least somewhere between Vietnam and Thailand (dotted blue arrow above) by 2039 and correspondingly a real per capita GDP growth of 4.8%  from 2021 to 2039;

c) however, if the current rapid speed of growth is maintained (ie same slope as the past few years – see solid blue arrow) rather than at the slower rate between Thailand/Vietnam, then a far higher level of per capita GDP might be achievable. When Cambodia reaches 35% urbanisation, a per capita GDP growth of 8.6% may be achieved in the same time... The only proviso is that this level of GDP was only reached by Thailand when it hit 52% urbanisation, and Malaysia when it reached 57%, a tall order...

In either case, we now have a good range to go by as our guide of future growth in Cambodia: 4.8-8.5% real GDP growth - per capita! This is very substantial indeed as in nominal and whole-country terms the numbers will be much higher.

Youngest populations in Asia, and almost growing the fastest

Not surprisingly given the recent history of the country, Cambodia has one of the youngest populations in Asia, at a median age of 26.5, just clipped by Philippines at 24.5:

Chart 3:Cambodia’s population is young and growing fast

The country is also growing the fastest amongst the SEA cluster, at a 1.2% p.a. growth rate. Surprisingly Thailand is now looking quite 'middle age', with median age at 39 and growth rate a meagre 0.2%... perhaps not an investment destination for high growth anymore?

Retail consumption also growing fast

With rising wealth, there should come rising spending. Using the GDP forecast (4.8-8.6% p.a.) we have arrived at above, it is not difficult to estimate the growth rate of retail consumption as well:

Chart 4:Cambodia’s domestic consumption likely track GDP growth 

Given how consistent the GDP-consumption relationship holds in other jurisdictions, we should see Cambodia's real consumption rise by a similar magnitude of 4.6-8.2% per annum in the next 18 years as shown by the vertical orange arrows in Chart 4. For retail property investment, we should consider the additional compounding effect due to urbanisation, which will concentrate more of that same spending power in city areas. Even though many big developers are building mega malls which rival some of the monsters seen in developed markets, well located future Orchard Roads (SGP) / Nathan Roads (HK) of Phnom Penh will be sure to emerge – for the savvy investor the returns will be truly significant.

As a true representation of the property market at large, one cannot avoid looking at how home prices have tracked, sadly there are only 2 years worth of data for us to look at. Interestingly it seems the turn south for Phnom Penh prices (red line) could be a result of oversupply compared to rest of the country which is less over built, and thus continuing to rise to new highs:

Chart 5:PP’s Residential price seeing a correction – perhaps a good time to research and wait for a next cycle trough…

In summary, the macro tailwinds are very strong indeed, but micro supply issues will make stock picking most crucial for successful property investing. On top of these, this country also poses additional challenges of ownership structuring (e.g. ground floors still off limits to foreigners except with nominees or trust arrangements) and politics remain a subject in need of detailed study.

Dash to lift lockdowns... at last! 20221216

After vacillating and hiding for far too long behind the rest of the world, the tide of protests finally prompted Chinese authorities to swiftly take down most of its lockdown measures - almost like a domino fall, and it is still in motion by the day.

Good news at last for HK properties as the PRC money and talent starved SAR will finally be able to play its conduit role without which it can hardly be called an international 'anything' centre...

So briefly here are some of the big changes that have been implemented or hinted to be put into effect:

HK relaxations:

1. LeaveHomeSafe (the identity tracing app) scrapped from 14th Dec - residual restrictions of vax status scan still required to enter dining venues (article 3);
2. Quarantine-free travel between China and HK from early January - see article 2;
3. We expect the embarrassing climb down by officials means the vax pass may also be abandoned in Jan, signalling a full return to normal after 3 years of prison like living.

China's “Ten New Measures”:

The measures (details in article 1) came down like a tone of bricks and swiftly swept through China like wild fire from 13 Dec onwards. The impact is jaw dropping in its magnitude and extensiveness, one day after the announcements:

1. Search volume for air tickets increase by 438% ;
2. Search volume for air tickets during Chinese New Year increase by more than 5 times;
3. Search volume for train tickets increase by 276%;
4. Search volume for train tickets during Chinese New Year increase by nearly 7 times;
5. Search volume for hotels increase by 7 times
6. vs a week before, scenic spot ticket sales rose by 59% to 300%

Back to HK, we expect the reopening to finally put a bottom beneath the rental levels of ALL property types, with prices benefitting as well. Take retail for example: 

Assuming PRC visitor numbers return to pre-unrest/pre-lockdown days in the 2017-18 area (blue arrow), we could safely project F&B value to go up 24% from here (or combined 12% to mid-23 (lower red arrow) and then another 13% to end-24 (upper red arrow)), or if we ignore the events of the past four years and assume the pre crisis trend (red dotted line) will continue, an even larger 51% rise from here (red dotted arrow).

Extending the analysis to retail rents:

It is not difficult to see retail rent will rise some 10% conservatively from here in the next year and half (red arrow), and if a return to trend unfolds, even 23% rise from here over the same period (dotted red arrow). All this is before we factor in the high inflation that is now the norm, which tends to push up rents even when the economy slows...

Now is a good time to lock in your rental agreements (if not already late), before aggressive hikes becomes a norm in the new year?

-----------------------------------------------------article 1------------------------------------------------------------

The “Ten New Measures” have just been released, and the search volume for air tickets has increased by 438% in an instant, and the search volume for hotels on New Year’s Day has increased by 7 times! Searches for air tickets soar to three-year high on the eve of Chinese New Year

December 07, 2022

On December 7, the National Joint Prevention and Control Mechanism issued the “Notice on Further Optimizing and Implementing Prevention and Control Measures for the New Coronary Pneumonia Epidemic”. The notice proposed a total of 10 specific items, including scientifically and accurately dividing risk areas, further optimizing nucleic acid testing, optimizing and adjusting isolation methods, etc....

Optimizing the implementation of the new ten rules for epidemic prevention and control is here! focus

1. Temporary blockade in various forms shall not be adopted;
2. No more inspections of nucleic acid test negative certificates and health codes for cross-regional migrants, and no landing inspections; except for nursing homes, welfare homes, medical institutions, childcare institutions, primary and secondary schools and other special places, no nucleic acid test negatives are required proof, without checking the health code;
3. Asymptomatic infected persons and mild cases who are eligible for home isolation are generally home isolated;
4. High-risk areas with no new infections for 5 consecutive days should be unblocked in time;
5. The online and offline purchase of antipyretic, cough, antiviral, cold and other over-the-counter drugs shall not be restricted;
6. Accelerate the vaccination of the elderly against the new crown virus;
7. Promote the implementation of hierarchical and classified management;
8. Non-high-risk areas shall not restrict the movement of people;
9. It is strictly forbidden to block fire exits, unit doors, and community doors in various ways;
10. Schools without the epidemic should carry out normal offline teaching activities.

above text from Google Translate, Chinese version: 

https://finance.sina.com.cn/chanjing/cyxw/2022-12-07/doc-imqqsmrp8868520.shtml?cre=tianyi&mod=pchp&loc=13&r=0&rfunc=30&tj=cxvertical_pc_hp&tr=181

-----------------------------------------------------article 2------------------------------------------------------------

Hong Kong to send ‘thousands of officers’ to checkpoints along mainland Chinese border ahead of shift towards freer travel

Cannix Yau and Clifford Lo | 16 Dec, 2022

...

[quoting key points of the article only]

Sources previously told the Post that the city was set to fully reopen its borders with the mainland and resume the high-speed train service to Guangdong from early next month.

The expected reopening follows the government’s decision to roll back anti-epidemic restrictions, such as easing entry rules for arrivals and no longer relying on the “Leave Home Safe” risk-exposure app, despite a significant increase recently in Hong Kong’s virus caseloads.

Thursday marked the highest number of daily cases since March 18, with health officials reporting 17,080 infections, 831 of which were imported, and 19 additional deaths.

The city’s overall tally stands at 2,307,397 cases and 11,075 related fatalities.

As part of eased restrictions on the mainland, authorities there have introduced measures to facilitate the cross-border flow of people and goods from Hong Kong, including increasing the daily quota for the number of residents allowed to cross from 2,000 to 2,500 on Thursday.

From Monday, mainland authorities have also allowed cross-border truck drivers to collect and deliver goods directly to destinations there without using the designated checkpoints.

...

A third government source said authorities would conduct refresher training for officers, inspect equipment and test computer systems, as well as carry out disinfection of facilities before reopening the checkpoints.

...

A source familiar with the plan to fully reopen the border said Beijing was keen to restore travel by earl He added that the reopening had been planned for a long time but was postponed several times as a result of different circumstances.

...

Hong Kong Railway Employees Union chairman Tam Kin-chiu said the move was subject to government approval but rail staff had already received rosters for both days.

​https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3203482/hong-kong-send-thousands-officers-checkpoints-along-mainland-chinese-border-ahead-shift-towards?module=perpetual_scroll_0&pgtype=article&campaign=3203482

-----------------------------------------------------article 3------------------------------------------------------------

Covid-19: Hong Kong axes app QR scanning to enter venues and lifts some restrictions on arrivals

by HILLARY LEUNG | 13-Dec-2022

While the use of the LeaveHomeSafe app for entering businesses has been scrapped, members of the public must still show their Vaccine Pass. Separately, arrivals will no longer be issued an amber code.

Hong Kong will no longer require members of the public to scan their Covid-19 LeaveHomeSafe app to access restaurants and other businesses starting from Wednesday, though vaccine proof will still be needed.

Arrivals will also not be issued an amber code in their LeaveHomeSafe app, meaning that people will be able to visit restaurants and other businesses during their first three days of landing in Hong Kong. Vaccine proof, several rounds of testing, and a health declaration will still be mandatory to enter the city.

Making the announcement at a press conference on Tuesday, Chief Executive John Lee said the adjustments were based on data and risk assessment.

“The risk of imported cases to Hong Kong is even lower than the risk of getting infected in the community,” Lee said. “Cancelling the amber code [arrangements] will not increase the risk of getting infected locally.”

He added that under the new rules, the LeaveHomeSafe app will only issue two different codes – red for those infected with Covid-19, and blue for those not infected.

The use of the Vaccine Pass, however, will still be required to enter businesses.

...

Residents are still required to wear face masks, including outdoors, and a gathering limit remains in force for groups larger than 12.

Arrivals to the city are also subject to two PCR tests and daily rapid tests for their first five days in the city.

He added that the resumption of “normal travel” with the mainland was “close to [his] heart.”

“I’ll do everything that can facilitate it, but we also must be aware that the decision must similarly be made on the actual situation… but I think that all people want to have as few restrictions as possible,” Lee said.

Hong Kong has seen 2.26 million cases of the virus since the onset of the pandemic, and 10,984 deaths according to the government’s Covid dashboard on Tuesday.

​https://hongkongfp.com/2022/12/13/breaking-no-need-to-scan-covid-19-leavehomesafe-app-amber-code-scrapped-as-hong-kong-announces-new-relaxations/