Investing 2019 August ... OCBC, MoneyOwl & thoughts on HK

[Disclaimer: I am an amateur investor and not a financial advisor.  I blog here to chronicle my investment journey.  My stock purchases and sales are unique to my temperament, life situation, risk appetite and investment goals.  All information that you find on my blog such as ideas, commentaries, predictions, or stock picks, whether expressed or implied, are not to be construed as personal investment advice.  I repeat, I am only an amateur investor.  I cannot and will not be held liable for any action that you take as a result of what you read here.  Do your own due diligence and/or seek the help of a qualified financial advisor.]


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It has been a pretty busy month for me, what with an overseas trip with the family and a sudden increase in work volume.  I thought I would sit out of the market this month, and just accumulate cash for the war chest.  However, with the increased market volatility this month as a result of the trade war and the unrest in HK, some good bargains materialised and I added OCBC to my portfolio.  I also kickstarted my investment with MoneyOwl.

1. OCBC




















All 3 major banks in Singapore have had a good half year performance.  The trio of Singapore's big banks all reported a broadly positive set of numbers.  When OCBC dropped to close to its 52 week low, I decided to pick up some.  I plan to start a position in UOB when the share price goes even lower, and accumulate more DBS shares too to average down.

During this first half year, OCBC was able to sustain their loan growth and grow their net profit before tax by 6 % ($2.32 billion in 1H18 to $2.45 billion in 1H19).  NIM rose 12 basis points to 1.79% as a result of increased asset yields in SG, HK and China that outpaced the rise in funding costs.  Non-interest income grew 12% yoy to $2.17 billion from both banking and insurance operations.

In the words of the CEO,
"We are pleased to report another strong quarterly performance.  Loan growth was sustained and NIM continued to improve.  Fee income rose quarter-on-quarter, led by higher wealth management fees, with our private banking AUM climbing to new levels.  While economic growth in our key markets is slowly, our healthy capital, funding and liquidity position will allow us to comfortably navigate the challenging operating environment and pursue our long-term growth strategy.  This also gives us the flexibility to capitalise on market expansion opportunities as they arise."

All 3 biggest banks in Singapore that form the backbone of Singapore's economic growth are strong and stable establishments.  Nevertheless, they are not immune to global economic headwinds.

With Singapore heading towards a technical recession (nothing confirmed yet but economists are mostly predicting a less than 1% economic growth after Singapore's economic growth in Q2 slowed to just 0.1%, the lowest in a decade), it is not unreasonable to expect the big 3 to be affected, even if not adversely.  The loan growth outlook for the big 3 will continue to weaken given the continuing lacklustre economic conditions (generally in bad economic times, businesses tend to borrow less for the purpose of capital expenditures, and individuals also borrow less for big-ticket items such as houses and cars).

The uncertainty that HK faces also affects OCBC-owned Wing Hang Bank (56 bank and credit branches).  The political unrests in HK, already in its 12th week, will have a chilling-effect on consumer and business investment confidence.  HK's economy only grew by 0.6% in the second quarter compared to the same time last year.  This is also the weakest quarter for the HK economy in a decade.

The protesters have a sinister motive of bringing the financial centre to a temporary standstill in a bid to achieve their political purposes.  Should they succeed, all the banks in HK will enter an even more difficult time.  Competition from internet-based banking rivals will further roil the financial services market in HK.

Nevertheless, should this political tumult in HK ends in the very near future, OCBC stands to gain through its operations in Wing Hang a window into the China market i.e. the Greater Bay Area.  Ambitious plans are currently being drawn up for the Greater Bay Area (GBA) initiative, where the goal is to build a world-class city cluster across the Guangdong-HK-Macau region.  By 2030, the region is expected to play a leading role in advanced manufacturing, innovation, shipping, trade and finance.  The development of the GBA will also act as a catalyst for China's Belt and Road Initiative.  So OCBC (and also DBS and UOB) is primed to tap into this lucrative play via Wing Hang.  There are talks now that Beijing might punish HK, given the protesters' allusion to independence, by axing HK from the Greater Bay Area initiative.  Should that happens, then HK will be left behind in the dust, and Singapore banks' acquisition of HK banks will fail to gain from the GBA initiative, which will be a real pity.

2. MoneyOwl

I started my investment (together with my wife) in dimensional investing with MoneyOwl this month.  I wrote a post on MoneyOwl a couple of months back (https://latemonkeyslife.blogspot.com/2019/04/dimensional-investing-and-moneyowl.html).

Every month, I give Mrs LateMonkey a portion of my income so she can have her own spending money.  Mrs LM has a talent of stretching every dollar that she gets, and at the end of the month, she has a tidy sum put away.  So I suggested to her about investing her money.  She said no ... investing is gambling! [facepalm] She held on to this way of thinking tenaciously for a while until I suggested to her about investing in MoneyOwl together.  Mrs LM likes to do things together with Mr LM (she is pretty sweet that way) and just like that, we are now putting equal portion of our money every month into our MoneyOwl investment.

We chose the Equity portfolio, 88% developed market and 12% emerging market.  We are taking a long term view on this investment for the next 15 to 20 years.

3. Thoughts on HK

While having time away from work last week, I tried to find out more about the HK protests.  I first read news from major English news websites such as the SCMP and RTHK, but find them all too skewed towards the anti-government voices.  Then in an attempt to find out the angles from the local population, I tried reading MingPao and Apple Daily,  But years of not having read news in the traditional Mandarin and Cantonese scripts have made this task a particularly arduous one for me.  Oh my, I could feel my brain turning to mush after reading a lengthy article in the Cantonese script.  Give up.  Turn to Youtube.

China had gone through 10 years of madness, namely the Cultural Revolution from 1966 to 1976, a time of great societal upheaval. And now HK is going through her own period of madness.  And it does not look like HK is ready to extricate herself from this lunacy.

What are some characteristics of this HK madness?  Rioters, not protesters anymore, destroy public and private properties, attack police with all kinds of weaponry such as petrol bombs, metal poles and bricks, verbally and physically abuse those who disagree with their modus operandi regardless of whether they are elderly or women, stormed and vandalised the Legislative Council, occupied the airport for 2 days, incite secondary school students to play truant and join their resistance movement ... just to name a few.

This nightmare will very likely continue because the HK administration, led by a bunch of civil servants, is weak; the police somehow has been soft on the rioters; the rioters have grown bolder and very adamant on having their 5 demands met by the government (1. full withdrawal of the extradition bill, 2. a commission of inquiry into alleged police brutality, 3. retracting the classification of protesters as rioters, 4.  Amnesty for arrested protesters, 5.  dual universal suffrage for both the Legislative Council and the Chief Executive).  In my honest opinion, only #1 is actionable by the Hong Kong government, #2 will take a very long time and very difficult to prove, #3 and #4 are against existing Hong Kong law and proper sense of law and justice, #5 will not be approved by the CCP.

So will this protest crisis end soon?  I think very unlikely. But I do hope very much that I'm wrong though. I don't want the protests to grind on.  Economic consequences for the HK people are beginning to mount, the HK society is becoming more fragmented by the day, and law and order has all but disappeared in the streets of HK.

After the airport was occupied for 2 days, there has been a great number of flight cancellations.  And many countries have issued travel advisories on travelling to HK.  Even SG universities have cancelled all exchange programs with HK universities, the very seedbed of this revolt.  The airport contributes around 5% to HK's GDP, so any disruptions to the airport operation are bound to reduce HK's economic growth. 

Tourists and business travellers are afraid to travel to HK.  Visitors from the mainland which constitute over 3/4 of all arrivals to HK have slowed to a trickle.  Hotel, retail, restaurant, tour and taxi businesses are all suffering because of a drop in tourist numbers (https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3023830/ordinary-hongkongers-feeling-pinch-anti-government).

With all the violence and inconvenience that the protests bring, people are afraid to leave their homes and are not spending as much on non-essential goods.  Retail businesses are all not doing well in general and are asking their landlords to reduce their rent.  So within the short-term, Reits earning will drop some (https://www.bloomberg.com/news/articles/2019-07-22/hong-kong-protests-may-hit-retail-rents-as-shoppers-avoid-city).  The share price of MTR has also dropped, although not too drastically, over these few weeks.

Funds are leaving HK and millionaires are moving their assets to other wealth centres such as SG (https://www.bloomberg.com/news/articles/2019-07-12/hong-kong-turmoil-has-millionaires-eyeing-other-wealth-havens).  The Tracker Fund of Hong Kong, an ETF that provide investment results that matches the performance of the HSI has taken a beating during this tumultuous period. However, it has yet to visit the lows faced during the last Asia financial crisis and SARS crisis.

It's still early days to the crash of the HK stock market.  There is blood in the streets now definitely, but I plan to wait for a total "bloodbath" before putting money in a place that has gone absolutely crazy.  I'm staying away from the HK market until maybe after the 70th national day of China.  For now, I believe China will hold back its troops from HK and allow the HK administration more time to quell the protests.  China is gearing up for her 70th national day on Oct 1, and Xi probably does not want any action taken against HK to steal the headlines.  After the momentous day of Oct 1, there is no guarantee that the gloves will not come off to reveal the iron fists.  China has already denounced the protests as terrorist acts and described the movement as a "colour revolution", a reference to uprisings in eastern Europe in the early 2000s.  I could be wrong since this is all just plain conjecture on my part.  Any way, l'll wait and see what happens to the HK stock market after Oct 1.

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