21 October 2016
The expanding group of retirees will change their investment style and value a stable income more. Photo: HKEJ
The expanding group of retirees will change their investment style and value a stable income more. Photo: HKEJ

Where to put your money when planning for retirement

An increasing number of people in Hong Kong are retiring.

It’s better to plan for retirement earlier than later. Those who have one or two apartments for rent certainly enjoy their retirement much better than those who splurged when they were young.

More and more seniors are facing the fact that Hong Kong is past its high-growth era of the last three decades.

And China’s economic growth is also moderating. The unemployment rate is on the rise.

The expanding group of retirees will change their investment style and value a stable income more.

I suggested earlier several local telecom and bluechip stocks, including HKT Trust & HKT Ltd. (06823.HK), AIA Group Ltd. (01299.HK), SmarTone Telecommunications Holdings Ltd. (00315.HK), Link Real Estate Investment Trust (00823.HK) and Hang Seng Bank Ltd. (00011.HK).

Investors can use a market correction to accumulate these stocks.

In the meantime, some investors prefer to buy bonds issued by certain utility companies with a coupon of only about 3 percent, rather than high-dividend-paying stocks.

That’s a sign that capital is chasing stable returns.

The rule also applies to the property market in Hong Kong.

The housing market is undergoing a correction, but there is only a limited chance of a sharp decline.

Property still offers stable rental income, and any short-term market hiccup may not cause panic among investors who cherish a stable income.

The price of gold price soared to more than US$1,280 per ounce recently, as major central banks have been printing money to safeguard economic growth.

However, monetary easing won’t work forever, and monetary policy should normalize sooner or later.

Massive credit expansion and fiscal stimulus have led to excessive liquidity in the markets, while global inflation remains subdued, primarily because of falling commodity prices.

It remains unclear how long this can remain given that Iran has resumed supplying oil.

Record-low oil prices have already forced some oilfields and shale gas exploration firms out of business.

Supply and demand for oil are moving toward a balance, and robust economic recovery might trigger inflation or interest rate rises in the end.

So, the outlook for gold prices is favorable in the medium and long term.

I still remember when discussing the gold price with the late Cho Sir last year that he insisted that is unlikely to drop below the production cost of US$1,000.

And the Chinese central bank will increase its gold reserves, so as to win the confidence of the market for a freely floating renminbi in the future.

Undoubtedly, the yellow metal has lost some of its allure as a safe-haven asset.

Nevertheless, those who are planning for retirement and holding a high level of cash should add 5 percent of gold exposure to their portfolio.

A gold exchange-traded fund is actually an investment tool and bears some risk.

Physical gold plays the role of insurance better. That’s why the gold price has spiked in recent months.

In the meantime, the Hang Seng Index posted a sharp move of nearly 1,600 points in April and closed the month at 21,067 points. The market has rallied 290 points in the last month but is still range-bound.

The US Federal Reserve held interest rates unchanged, as expected, last week, but it failed to offer a clear hint about a mid-year rate hike.

Unexpectedly, the Bank of Japan has not expanded its monetary easing package.

That has weighed on global equity markets.

It seems major central banks have very limited tools left at hand.

In China, the headline Caixin manufacturing purchasing managers index slid to 49.4 in April from 49.7 in March.

The reading showed some signs of moderation and reflect that China’s economic growth rate has eased to the range of 6.5-7 percent.

Investors should time the market if they want to bet on policy-driven stocks.

It’s not easy to make money against the backdrop of a slowdown in economic growth and falling corporate profitability.

I suggest investors go against the crowd from time to time and keep their investment in stocks below 30 percent of their portfolio in May.

This article appeared in the Hong Kong Economic Journal on May 3.

Translation by Julie Zhu

[Chinese version 中文版]

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columnist at the Hong Kong Economic Journal

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