We carry a new commentary from a senior figure in Hong Kong's wealth management industry, Nick Xiao. He has also recently joined the editorial board of this publication, adding his voice and expertise. 

The following commentary comes from Nick Xiao, who recently joined the global editorial board of ClearView Financial Media, publisher of this news service. Nick is also CEO of Hywin International (the Hong Kong subsidiary of Hywin Wealth. (See his previous article here.) 

(Note: All views contained in this article are those of the author and do not reflect the opinion of Hywin Holdings Ltd.)

To comment and respond, email tom.burroughes@wealthbriefing.com

Born to make profits
Investors are compulsive hunters for value. And legends abound.

How Warren Buffet discovered Coco-Cola and AMEX, and recently the Japanese trading houses. How Masayoshi Son acquired a stake in an e-commerce startup in China, at its infancy. How Shan Weijian of NewBridge acquired a nameless bank in Shenzhen, against all odds. These war stories inspired numerous investors and continue to serve as conversation starters.

Hong Kong investors, those based in HK and those accessing the city’s markets and exchanges by various means, have always been extremely alert to value. Their proverbial “killer instinct,” â€śstreet smart,” “seeing it first,” and “long-term holding power” delivered performance over the decades and added a halo to the city. 

But recently, value-hunters in Hong Kong have been less inclined to pull triggers, even when apparently irrefutable value presents itself.

Real estate bargains
Buying commercial real estate in Hong Kong used to be like buying art. Either you call friends to get the chance to audition for the honour of expressing an interest, or you join a process of competitive auction, with your psychology ruthlessly played by the seller and their agents.

But these days, with a whole floor at the classy Bank of America Tower recently sold at a 52 per cent loss and multiple big-ticket sales aborted by the buyers on second and third thoughts, the table has been almost permanently turned.

For residential properties, bank foreclosures at deep discount are sniffed at by picky buyers, but few bids are made.

People blame many things. Mortgages are expensive. Chinese SOEs in Hong Kong cut back on space needs. And tech giants have been humbled.

Even Julius Baer, arguably the new king of an industry that must have a central location with a prestigious address, has moved out of the Central district. 

But hold on – Julius Baer moving to a Swire building with modern facilities and much lower rents, is the value hunter in action!

Hong Kong stocks
Hong Kong stocks are at a relatively low point. We all know that. But relative to what – that’s the question?

At the annual general meeting of a large asset management association of which I am a member, people drank litres of black coffee and debated the status and direction of the Hong Kong equities market, and what should be done, with real angst. 

The total trading volumes of Hong Kong stocks in a day tend to be less than those of a certain electric car maker in the US. This cannot be right, and something must be done.

Interestingly, with the valuation low and liquidity similarly so, the “when the tide goes out…” moment has come. The companies that can retain investor attention and healthy volumes are those with resilient business models and credible growth narratives.

Value hunters be ready, as the fog has lifted, and your game is in plain sight.

Hot pot 
Hot pot, of course, is the popular Chinese food – or shall we say a way to cook Chinese food – that has gained almost global acclaim.

Diners use chopsticks to dip sliced lamb, diced abalone, tangled goose intestines, and iced tofu into the boiling, spicy lava of a fuming urn.

Where do Hongkies get their hot pot these days? Across the border.

They carry their papers, take the one-hour bullet train, land in Shenzhen, and head to their hot pot places.

Why the bother?

Because Shenzhen’s hot pot offerings are nicer, people say. Meat is cheaper. Vegetables are shinier. Waiters are keener. Spices are sharper. And you can always pick up some cheap groceries on the way back.

More than half a million of Hong Kong’s population are estimated to have made this trip of “pleasure and arbitrage” to Shenzhen in early October.

Value hunters, one meal at a time.

Value is earned
Hong Kong’s financiers, landlords, hoteliers, and restaurateurs are fantastic salespeople. And value has always been the crowning argument of a pitch.

But buyers, investors, customers, and diners are getting smarter, bargaining harder, and acting quicker.

For Hong Kong to retain its allure, and everything in it, on it, and of it, we can wait for the upswing of cycles to come, or assume reduced marginal costs like stamp duties can do the trick, or try harder to win a larger spectrum of buyers from a truly global geography, whilst being absolutely honest about what we need to do in a changed world.

Value hunters. To entice them, we may have to join them.