Rich Chinese Offloading HK Flats

Some Chinese owners are selling their flats in Mid-Levels

Not only are locals and expats offloading their properties to leave the city, but also mainland Chinese who need to cover their stock market losses.

About 10 to 20 percent of mainland homeowners in Mid-Levels have reduced their prices because they are in urgent need of funds or are shedding their holdings, said Samuel Lai, senior direct sales director at Midland Realty.

"Homeowners in urgent need of money may cash in for having burnt their fingers in the stock market," said Lai, who anticipates another 5 to 8 percent will lower their asking prices until the pandemic and stock market volatility ease.

One buyer is offloading his flat at The Morgan

However, who is willing to buy now? Prices could go down even further in the coming months, and these transactions may take a few months to be completed. Perhaps even worse, the current fifth wave has made potential buyers anxious about even viewing the flats, thus further stalling the property market.

Hong Kong's stock market has been a rollercoaster ride in the past two weeks with mainland Chinese tech stocks taking a serious beating, and on top of it the war in Ukraine and the rise in Covid-19 cases in China causing jitters.

Property owners in Mid-Levels have cut prices by up to 15 percent since Lunar New Year because of the aggravating factors, said Lai, adding that prices may fall further by another 5 percent until midyear.

Sun Hongbing is the younger brother of mainland Chinese developer Sunac China Holdings' chairman, who sold three luxury flats at The Morgan and Arezzo in West Mid-Levels at a loss of a whopping HK$126 million (US$16.10 million) this year.

Another flat is at Arezzo on Seymour Road

He sold the 2,343 sq ft flat with a 460 sq ft rooftop at The Morgan for HK$138 million, 27 percent lower than the HK$189 million he bought it for in October 2018. The overall loss totalled HK$109 million, the biggest loss since the coronavirus pandemic erupted two years ago, if the 30 percent stamp duty is taken into account.

The creditors of another Chinese tycoon from Zhejiang province put two foreclosed duplex flats and two parking spaces at Marinella in Wong Chuk Hang for sale at HK$283 million. 

Looks like things are financially tight for everyone...

Hong Kong's Budget Hopes to Jumpstart Economy

Paul Chan delivered his budget today with a green tie

Financial Secretary Paul Chan Mo-po delivered a sobering budget today with only a few sweeteners in a bid to jump start Hong Kong's economy after a year of recession because of the coronavirus pandemic. 

The city fell into a record deficit of HK$257.6 billion (US$33.14 billion), and Chan warned Hong Kong would continue to have deficits in the following years. Nevertheless he forecasts 5.5 percent economic growth in the coming year.

Permanent residents get HK$5K in vouchers

There are a few main highlights from the budget:

While last year the government handed out HK$10,000 to each Hong Kong permanent resident and low income non-permanent residents, this year Chan said only HK$5,000 that would be given out to every adult permanent resident and new immigrant from China -- but in the form of electronic vouchers, and incrementally, to be used by a certain date each time. There were no further details on how that would work and what that could be spent on, but some speculate it will be for food, which makes supermarkets, or rather the conglomerates that own them -- even richer.

For those who have been unemployed, with proof of paperwork, they can take a one-off low interest loan of up to HK$80,000 and borrowers would only have to repay the interest in the first year, and the balance within a maximum of four years. Those who pay back the loan on schedule will be reimbursed the interest.

As the unemployment rate is now at a 17-year high at 7 percent, Chan has earmarked HK$6.6 billion to create 30,000 jobs for the next 12 months. 

The government will create 30,000 new jobs

Seeing as Hongkongers are stuck in the city because of the pandemic and many have turned to hiking, the financial secretary has pledged HK$500 million to spruce up country parks, installing new washrooms, barbecue pits and picnic sites, including HK$55 million improve 10 hiking trails with the potential of promoting for tourism.

Speaking of tourism, Chan has allocated HK$934 million into that sector, perhaps in a bid to get the city ready when the pandemic calms down and people can start traveling again. The Hong Kong Tourism Board is probably salivating over that money it gets to play with.

Those playing the stock market were shocked to hear the government will raise the stamp duty to 0.13 percent from 0.10 percent on stock trading, the first hike since 1993 that could help the public coffers grow to HK$92 billion.

The response was immediate on the Hong Kong Stock Exchange, with the Hang Seng Index plunged as far as 9.3 percent before finishing the day down 3 percent to 29,718.24. Investors didn't see that announcement coming and many feel this hike on the stamp duty is bad for the financial sector. 

Money will be used to upgrade hiking trails

But perhaps the most eyebrow-raising news that Chan did not announce in his speech is that a whopping HK$8 billion will be spent "to safeguard national security".

In a press conference with the media following his budget speech, Chan said he did not include this figure because it has already been accounted for, and that Chief Executive Carrie Lam Cheng Yuet-ngor had already approved the amount.

Also suspicious was that Chan did not explain where the money came from and how it would be spent. 

In a separate budget document, it says the HK$8 billion is a "non-recurrent appropriation to a special fund to meet the expenditure for safeguarding national security". During the press conference, Chan only said that the money would be used over the coming several years and did not clarify how the money would be spent and on what.

One reporter on Twitter has pointed out this amount is almost three times the budget in 2018-2019 on "internal security", just before the anti-extradition bill protests erupted. 

A whopping HK$8 billion on national security

There is also HK$3.5 billion that will be spent on prison management, up from HK$3 billion last year, while "constitutional and mainland affairs" will receive a budget of HK$200 million, twice as much as it got five years ago.

Jeremy Tam Man-ho, former lawmaker and vice-chairman of the opposition Civic Party, said the funding allocation for national security was equal to "dumping money into a dark hole", and called on the government to explain. 

"It is a large amount of money," he said. "But there is no transparency at all. The people have no idea how the money is to be used. I think the government owes Hong Kong people an explanation."

Indeed. 

Lam on Charm Offensive in Davos

Can Carrie Lam persuade world leaders Hong Kong is open for business?

Hong Kong's fearless leader Carrie Lam Cheng Yuet-ngor is in Davos, Switzerland to attend the World Economic Forum in the hopes of persuading leading political and financial figures that our city is still open for business.

Her visit coincides with a report by Moody's Investors Service that has downgraded Hong Kong's rating by one notch to Aa3 from Aa2. In September, Fitch Ratings cut Hong Kong's sovereign rating  to AA from AA+.

"Team HK" is in Davos for the World Economic Forum

Moody's says the downgrading is due to concerns the government has not been able to quell the political and economic issues from eight months of protests.

"The downgrade principally reflects Moody's view that Hong Kong's institutions and governance strength is lower than previously estimated," said Marie Diron, managing director of Moody's sovereign risk group, and Martin Petch, vice-president and senior credit officer of sovereign risk group, said in a statement on Monday night.

"The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody's had previously assessed," the New York-based credit rating agency said.

Protests are still happening, one of the latest in Landmark

It described the government's response to demands for greater political freedoms and expensive living costs as "notably slow, tentative and inconclusive".

"It may also point to more significant constraints on the autonomy of Hong Kong's institutions than previously thought," the agency added, hinting pressure from Beijing.

This is a pretty big strike against Lam and her administration, who are bringing "Team HK", including the trade secretary, top officials from the stock exchange, airport authority, MTR Corp and the head of Swire Group to the Swiss mountain resort.

But perhaps a more eminent threat is the Wuhan pneumonia that is spreading quickly (or we just haven't been told the truth about it all along), and it is only a matter of time before the first confirmed cases are in Hong Kong.

The corona virus in Wuhan is spreading very quickly

If Hong Kong does experience another SARS outbreak, that will be a double blow to the city's economy that has already been battered by the protests.

News of the pneumonia-like virus spreading resulted in Asian stocks taking a battering, and Hong Kong more so with the downgrade from Moody's.

How is Lam going to convince world leaders that she can lead the city out of these crises? She hasn't demonstrated any kind of leadership in the past eight months...

Will Tobacco IPO Light Up?

Cheap cigarettes are easily available everywhere in China

The world's largest cigarette company is filing its IPO in Hong Kong -- China National Tobacco.

I raised my eyebrows when I found out.

To clarify, it's the Chinese state-owned tobacco monopoly's international subsidiary, China Tobacco International, is planning the listing. Its revenues were HK$5.1 billion (US$651 million) from January to September last year, according to documents filed with the Hong Kong stock exchange.

The state-owned monopoly filed an IPO in Hong Kong

China National Tobacco buys leaves from overseas markets such as Brazil and the United States, and then sells them to domestic cigarette manufacturers at a 6 percent mark-up.

The Chinese company also has a monopoly on all tobacco exports from China, which largely caters to Chinese tourists in duty-free outlets across Asia -- a very small market.

China National Tobacco doesn't publish data on its accounts, but Bloomberg News said a rare release of financial data in 2012 suggests the state-owned enterprise's earned profits were on par with HSBC and Walmart.

It's intriguing the application for the listing is being made now, at a time when everyone knows smoking is harmful to your health -- and who will invest in this IPO? Sounds like a test of investors' ethics.

According to the World Health Organization, 7 million deaths last year were attributed from cancer and other lung diseases, or 1 in 10 deaths worldwide, 1 million in China alone.

The country produces the most cigarettes in the world

The Chinese government puts out feeble public service announcements about the harmful effects of smoking on health, but in reality it makes a lot of money from holding the monopoly on selling tobacco...

In Hong Kong where smoking rates fell 10 percent in 2017, we'll have to see if people have the appetite to encourage others to light up...

A Stock to Watch

Shoppers could buy everything from junk food to staples at this chain store

For many Hongkongers 759 Store is a shop they like to browse in, especially for snacks from Japan, though it has grown to include ones from Europe and the United States. It also carries noodles, rice, sauces, and even frozen seafood.

I've written about 759 Store before, and the shop got its name from the parent company's stock number on the stock exchange.

However, it was shocking to find out yesterday that the founder and owner, Coils Lam Wai-chun, died unexpectedly on Saturday at the age of 60. It was disclosed he had diabetes for a long time.

Coils Lam died on Saturday at the age of 60

Instead of the parent company's stock falling, it more than doubled in value today. On Friday it closed at HK46.5 cents and then today went as high as HK$1.04 before closing at HK89 cents. That's because investors think positive change is on the way.

"The passing away of the founding chairman is sad news. However, it also give hope to investors that it may have the way for a major restructuring, or even merger and acquisition opportunities. This has led buyers to rush to bet on the stock on Monday," explained Jeffrey Chan Lap-tak, founding partner of Oriental Patron Financial Group.

"The 759 Store in fact is very popular and has a leading market position among snack retailers. Its [financial] results were not good in recent years, mainly due to an over expansion of the number of stores a few years ago. But the reduction of stores in the past two years has already helped the company get back on track. It may well be a target of acquisition," he said.

Like many small and medium-sized enterprises, they were dependent on their founders, like Lam in the case of 759 Store. Lam and his wife Law Ching-yee own 70.89 percent of CEC International, the parent company.

The future of 759 Store looks positive in terms of stock value

"Now the founder has died. We will need to wait and see if the new management can lead the business forwards," Chan said.

On Sunday the board held an urgent meeting and decided executive director Tang Fung-kwan, 48, will become the new chairwoman of the company. She joined the group in 1993 and was appointed executive director in 1999. She is responsible for the overall management of the procurement part of the business.

Lam founded 759 Store in 2010, competing with supermarkets by offering Japanese and Korean snacks, like cookies and chips before expanding to rice, coffee, and even wine.

It'll be interesting to see how the company fares post-Lam -- will it succeed or fall apart? The company will need to make some wise decisions, but so far cutting down the number of stores from 270 to 220 is a good start. Maybe the chain will be bought out, or maybe with the injected investment they can do other things.

Definitely a stock to watch!

Xiaomi Caught in the Middle

Xiaomi's founder, chairman and CEO Lei Jun poses with the gong on July 9

Xiaomi, the world's fourth-largest smartphone maker, has had a heck of a time on the Hong Kong stock exchange after it launched its initial public offering on July 9.

While the stock price fell after opening day, there was belief it would be buoyed by hopes that investors on the mainland would be able to buy the Xiaomi stock through a program called Stock Connect that was supposed to start for the stock on July 23.

Hong Kong Exchanges and Clearing Limited expected this program would be a routine formality to start on time.

HKEX head Charles Li has rushed to Beijing

It assumed wrong.

On July 14, the Shanghai and Shenzhen bourses announced Xiaomi's stock would not be included in the Stock Connect pool, potentially preventing billions of yuan from being invested in the company, thus denying Chinese investors the chance in investing in a company's stock that is projected to rise significantly.

The announcement was not only a big setback for HKEX, but also Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor, who had thought Stock Connect was a done deal. It's also a question of her how good her guanxi is with Beijing.

She and Financial Secretary Paul Chan Mo-po hastily met with HKEX officials after learning about the announcement and on Monday night, Charles Li Xiaojia, head of HKEX flew to Beijing to see if he could smooth things over...

Carrie Lam was caught off guard by the announcement

As a result of Saturday's statement, Xiaomi's stock fell almost 10 percent in trading but managed to climb back up to close the day with a 1 percent loss. This just shows how much politics is still meddling in China's and Hong Kong's stock markets.

China's stock markets are in bear territory, falling 23 percent in Shanghai, 22 percent in Shenzhen since January. And so the opportunity for mainlanders to invest in Xiaomi would have potentially led to major capital flight, which the government is anxiously trying to stem the flow.

Stock Connect has been around since 2014, to allow international and mainland investors to trade securities in each other's markets. More than 2,000 equities in Shanghai, Shenzhen and Hong Kong are now included in the scheme.

Turnover for Hong Kong stocks in the program have been growing steadily, accounting for around 7 percent of the Hong Kong market's total turnover. Last year, it was around 6 percent, up 3 percent from 2016.

In the meantime the chances of clearing this impasse seems slim, as the mainland bourses seem keen on dragging Hong Kong's stocks -- and the HKEX's reputation -- down with them.

Storm of the Year: Typhoon Hato

Trying to keep dry while Typhoon Hato lashes Lei Yue Mun waterfront

Hong Kong woke up to the strength of Typhoon Hato that was T8 around 5.30am and quickly went to T10 just after 9am.

My flat in Kennedy Town was very noisy thanks to the wind passing through the elevator shafts, howling louder than the wind outside. And at some points I could feel the building swaying -- not a lot, but enough to feel like things weren't quite steady.

Some storm watchers braved the severe weather conditions

I stayed home like most people, as buses, trams, ferries and outdoor MTR trains were stopped, including the Airport Express and hundreds of flights cancelled at the airport. Even the stock exchange was closed all day.

This was pretty much unprecedented, as us underlings have always had a theory that tycoons might have a hand in deciding the severity of the weather because they were in the business of making money.

Many typhoons have blown through overnight, or the T8 signal isn't raised until 5pm or 6pm when people were leaving work anyway.

But this time the typhoon really was severe, as there are videos on social media showing giant waves crashing into walls, flooded underground car parks, trucks tipping over, a revolving door spinning madly, and even hordes of cockroaches fleeing on a ledge.

There were many areas reporting extensive flooding

By around 5pm the signal was lowered to T3 and by 6.20 it was T1, and finally all signals lowered.

Some market analysts are calculating that the loss in business today was estimated between HK$4 billion to HK$8 billion. Those numbers include tourism, transportation, marine, financial services, agriculture, event organizing, entertainment, administration and import-export firms.

And even though some businesses managed to open, there were hardly any customers to serve because the weather conditions were so bad not many wanted to venture out.

I feel for shop owners and restaurants who lost a lot of business today, but this time the typhoon really was quite serious. The last time we had such a severe typhoon was in July 2012 when Typhoon Vincente hit.

Tonight Wan Chai MTR station was very quiet!

In any event all is calm again in Hong Kong and it's back to work and school for everyone tomorrow. But we'll all have stories about Typhoon Hato that we'll be telling for years to come.

HK's Financial Market Closer to China

The opening ceremony of the Shenzhen-Hong Kong Stock Connect today

Another sign Hong Kong is moving closer to the mainland -- today was the launch of the Shenzhen-Hong Kong Stock Connect, where Hong Kong investors can buy mainland stocks and vice versa.

Foreigners will now have access to trading the stocks of almost 900 firms. According to the World Federation of Exchanges data, Shenzhen is Asia's busiest stock exchange, with a monthly turnover of over US$1 trillion.

The link was supposed to be launched last year, but was delayed due to mainland market volatility.

Hong Kong will benefit from stock trades going both ways

However, the first day of trading was considered rather muted, using only 21 percent of its daily northbound quota. It also failed to boost the Hang Seng index that dropped 0.26 percent due to overseas market volatility.

At the opening ceremony, Hong Kong Chief Executive Leung Chun-ying said: "This will strengthen Hong Kong as a super-connector between the world and the mainland. This will also enhance Hong Kong's role as an offshore yuan trading hub."

Two years ago the Shanghai-Hong Kong Connect link was launched, and Hong Kong Exchanges and Clearing chief Charles Li Xiaojia said today was a new milestone.

"If Shanghai-Hong Kong Stock Connect is a first baby step, the Shenzhen-Hong Kong is the second. Now we can walk, and then we can run," he said.

Foreign investors have access to almost 900 Chinese firms

While the link gives foreign investors access to mainland companies, it also benefits mainland investors looking to park their money outside of China. But surely many are savvy enough to know that having their stock trades watched is not the best way to transfer their money elsewhere.

So, it looks like whether we like it or not, our financial markets are becoming physically closer, offering a way for some people to launder their money, and for foreign investors who haven't done their due diligence to increase their chances of losing money on companies that are possibly not above board.

Perhaps that's why the response wasn't that enthusiastic today?

Time will tell.

Typhoon Haima Shuts Down HK

No traffic on the roads in Kennedy Town this morning

This morning at 6.10am, the Hong Kong Observatory raised the Typhoon No. 8 signal, which would last for most of the day, as Typhoon Haima came close to the east side of the territory.

In Kennedy Town just before 9am, winds started picking up with only a few drops of rain. Hardly any traffic was on the roads, save for some taxis trying to gauge passengers, but the MTR was running.

In Belcher Bay Park, a handful of people could not forego their exercise regime and continued doing laps around the park, while leaves and small branches were scattered on the ground.

Many had the day off work today with the T8 signal

The commute to Taipo was painless with hardly any cars on the road. But around 11am the winds got stronger as Typhoon Haima made its approach around noon.

One of the trees in front of one of our fourth floor windows started bending almost horizontally. We saw it and ran to the window. But when we got there, it didn't bend back as far again. It was also raining very heavily at times.

However, after lunch I looked out the window and the tree was gone! It had snapped and fallen along with a few others.

Not until 5.20pm did the observatory lower the signal to Typhoon No. 3 and by the time I came home from work at 7.20pm, it was like this morning -- windy and light showers.

For most people it was a day off work and many businesses were shut. Francis Lun Sheung-nim, chief executive of financial group GEO Securities estimated Hong Kong may have lost over HK$5 billion in business.

This tree in the foreground had fallen after lunch!

That's a massive sum, but probably true, seeing as most of the city was shut down, including the airport, the stock exchange, banks, schools and then all the way down to independent businesses.

Now at midnight the typhoon signals have been cancelled. What a week! We had black rain on Wednesday where lots of roads particularly on the east side of Hong Kong were flooded, and then yesterday was sunny and calm. And then today's chaotic mess.

Tomorrow we could see the sun again...

Meddling in Markets Worse for Stocks

An investor watches the stock market drop which is important in free markets

This week has seen a rocky ride on the stock exchange with China worrying investors with its circuit breaker mechanism.

It was implemented on Tuesday, shutting down all trades after shares dropped more than 7 percent, and then yesterday -- where trading was only 13 minutes long before the circuit breaker cooled off trades.

The Chinese thought they could control the markets, but the past few days have shown China's drop in the value of stocks may possibly be due to production numbers being even lower than expected, or the state of China's economy is worse off than previously believed.

The aim of having the circuit breaker may have been to protect mainland stock investors, but it shows how volatile the stock market is in China and it is these fears that crossed the Atlantic and then the Pacific, adversely affecting investors in Europe and North America respectively

Last night it was decided by the China Securities Regulatory Commission to do away with the circuit breaker mechanism that was only implemented on Monday.

"The negative impact now has exceeded the positive side [of the mechanism]," said Deng Ge, a spokesman for the CSRC.

The left chart shows China, the one on the right, Hong Kong

Today the Chinese market ended slightly higher at 2 percent, while Hong Kong's Hang Seng Index was down 6.52 percent. It was the worst weekly decline since September 23, 2011.

That's a bit of consolation after such a crazy ride this week.

Part of the problem is that the vast majority of mainland stock investors have very little knowledge about stocks, many only hearing how they can earn money from trading them.

Instead many have a herd mentality, just following others' advice without much critical thinking and research, and a number of them are left holding the bag, while the savvier ones cash out with princely sums.

It's also interesting to note a business columnist's theory about how stock markets work relative to the economy's performance.

Jake van der Kamp's latest article shows two graphs. The first one is of the Chinese economy and stock market. As one line shows a steady diagonal climb to the right, indicating the mainland's increasing GDP annually, the country's stock market is performing miserably.

However the second graph shows Hong Kong's situation. The city's GDP moves in tandem with economic growth -- which van der Kamp says indicates a healthy economy -- when business is good, stocks are too.

It just shows how the mainland stock market is severely undermined by the authorities' interference, and adding the circuit breaker this week made things even worse.

One wonders whose head(s) will roll since the circuit breaker -- which was meant to help control the stock market -- did the complete opposite!

So while the Communist Party of China and President Xi Jinping may desperately want to control the stock market, trying to meddle not only makes it worse for their fledgling investors, but also gives the authorities less credibility.

China should really step back and let the market determine which publicly-listed companies will sink and who will swim. Only then can the Chinese economy become leaner and stronger.

But with its paranoia for control, a laissez-faire attitude won't be introduced any time soon. So hold on for more rocky rides on the stock market in the coming days and weeks.

Generating Shock News

Li Xiaolin suddenly resigned from a nuclear power company yesterday

When I lived in Beijing, the government under then President Hu Jintao and Premier Wen Jiabao tried to merge various state enterprises together to make them more efficient.

However, the biggest problem was at the top, where the leaders of each company would refuse to budge, ie step down, and so each continued ruling their own companies like fiefdoms.

That led to further stagnation, overproduction, and stock prices sinking.

But there is some light at the end of the tunnel, starting with Li Xiaolin, daughter of former Premier Li Peng.

On December 30, a deal was struck between China Power New Energy Development and State Nuclear Power Technology Company involving the payment of shares and cash for the latter's assets.

Li in Roberto Cavalli coat worth 35K yuan

The restructuring was engineered by the State Assets Supervision and Administration Commission.

Up until yesterday she was chairwoman of China Power International Development, a sister company of China Power New Energy Development.

Li, 54, was also vice-president of China Power Investment Corporation, working there for 12 years. But in July, CPI merged with State Nuclear Power Technology to become State Power Investment Group, and there was no announcement of her having any role in the new entity.

The news shocked those in the industry who assumed Li would lead State Power Investment Group because of her background.

However she was recently transferred to China Datang Corporation, a large state-owned enterprise focused on power generation.

But even more interesting -- because she had to resign from China Power New Energy Development, shares of the company jumped 19.35 percent on the Hong Kong stock exchange to HK$0.74. It was previously at HK$0.60.

The resignation also paves the way for the new boss, Wang Binghua to finally make some changes, such as set up a back-door listing in order to publicly trade the country's nuclear power assets.

No longer the "power queen", Li will have to be content in a somewhat respectable job, but with much less influence than before.

Perhaps this might have something to do with a report that came out last January by the International Consortium of Investigative Journalists. The group found Li was director of two companies, Tianwo Holdings and Tianwo Development that were set up in the British Virgin Islands, a well-known tax haven.

The report contended that Li and many other close relatives of current and former leaders had funneled so much illicit capital that it had a severe impact on China's economy and contributed to the widening wealth gap and corruption.

And how did Chinese state media report on Li's sudden departure of China Power New Energy Development?

China Radio International said she resigned "due to her work schedule" with no further details...