Vote of Confidence

4  July 2020

Dear Fellow Investor,

Vote of Confidence

Weekly chart of EWH, which is the ETF of blue chip Hong Kong shares traded on the NYSE

On Thursday, 2 July, the Hong Kong legislature passed the national security law which resulted in universal condemnation/sanctions  by Western countries.  The law will put an end to violence, chaos and economic disruption by those selfish protestors who are willing to destroy one of the most successful economies on the earth. Hong Kong was successfully run for 150 years by the autocratic British. There was no democracy but there were free markets, budget surpluses, strong currency, low taxes, and business opportunity. For those willing to work hard, save and invest there were no limits   and a minimum of government interference.  150 years of stability and prosperity, why change ? The demonstrators wanted to change the system to be more aligned to the European/US/UK  social welfare, high tax  model and they tried to force their views via violent methods. They burned China flags, destroyed LRT stations, blocked roads, shut down businesses and at one point shut down the airport.  Hong Kong after all is China and China finally decided to put a stop to it via a security law.   Every country in the world has security laws to protect the public so it was a reasonable decision and the markets reacted positively.  Protestors in the US are doing the same thing but the US has laws on the books to limit the damage. At one point Donald Trump called in the National Guard to restore order and passed an executive decree for a one year jail term for anyone burning a US flag. The height of hypocrisy  was the criticism of the Hong Kong security law by US/ European/UK   officials while the US and Europe have similar laws.

The Hang Seng rose over 5 ½ % in the 2 days following the passing of new national security law.  Blue chip, property and the broad market gained. We hold the EWH and some Hong Kong shares which have suffered due to the demonstrations. In mid March, 2020 Valuations  were at PE 9.5 times, a 1998 level during the Asian financial crises. We held on as we have confidence in recovery.  Singapore has also suffered for different reasons and valuations there are also attractive.  Compared to US markets in my opinion risk is a lot less for Hong Kong and Singapore. The S  & P trades at PE 22 times, far above the historical PE 15 times. Dividends earned are also very attractive.  Much more than US shares

The KLSE is showing signs of recovery. Our recent technology purchases are making progress. Maybank and Public Bank are showing signs of life.  Ajinomoto appears to be coming back from the dead.  Gamblers are returning to Genting casino so there could be recovery in Genting shares as Malaysia gets back to normal.

Next week, I hope to have a weekly market webinar up and running. I will still produce my weekly email report. What do you think ? Your feedback please. 

One of my friends just returned  from Penang. It seems the covid problem is solved there. No new deaths , infection rates are few and far between. There are great deals in hotels, traffic is not so bad  and the popular restaurants are not crowded. Of course there are no cruise ships or foreign tourists allowed.

A great place to visit in Penang is the botanical garden with many varieties of birds.