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Investment for Expats in Hong Kong

Submitted: August 2013

In Hong Kong, expats should be concerned with beating inflation to preserve the value of their savings.

Inflation is actually a personal matter, as you must determine for yourself which inflation you want to beat. If you are a long-term immigrant, you are likely to be concerned with inflation in Hong Kong. If you plan to return to your home country, you might prefer beating the inflation rate of that country.

Remember that you invest for a purpose, and that this purpose is specific to you. If the purpose of your savings and investments is 100% outside Hong Kong but you invest in any Hong Kong dollar assets, you are effectively taking a currency bet. However, you are unlikely to have much foreign exchange exposure if:

  • you are from the US, or
  • you are from a country whose currency is pegged to the US dollar.

Inflation in Hong Kong

Inflation in Hong Kong is not subject to central bank monitoring, as the central bank is committed to defending the USD/HKD exchange rate. Consequently, inflation may be allowed to be volatile. Hong Kong has a track record of having allowed an extended period of high deflation in the early 2000s. For more information on monetary policy, see Foreign Exchange for Expats in Hong Kong.

Over the past few years, inflation has frequently exceeded 4%.

Savings accounts

Savings accounts generally have a very low yield (no more than 0.5%), even if they are fixed-term accounts. Thus, the real value of your savings is eroded away by inflation unless you take action.

If inflation stays above 4%, this means that your purchasing power may erode by more than 3.5% per year, even if you have invested your money on a Hong Kong savings account.

Hong Kong securities (costs)

Do consider carefully the applicable transaction costs if you wish to trade Hong Kong securities. Here are the main costs you should be aware of:

  • Hong Kong Stamp Duties (generally 0.103%)
  • Broker’s commission fees
  • Minimum commission fees (these can be as high as HKD100)
  • Any other applicable fees that may be charged by your broker.

For an overview of the online stockbroker market in Hong Kong, click here.

Hong Kong securities (overview)

Be wary of volatility when you invest in securities. Volatility is heavily dependent on the underlying risk. However, higher risk normally means higher reward, and some securities may be low-risk. Additionally, stock market variations are very dependent on interest rates. If they are going up, stock prices should go down. At the moment, interest rates in Hong Kong are at near-zero levels. See Foreign Exchange for Expats in Hong Kong.

You can expect Hong Kong securities to be low yield. This ranges from 0.3% on 2-year government bonds to above 4% on certain high risk shares (based on dividend yields).

You are responsible for deciding how much risk you want to take on. There is no set answer to this question, as this largely depends on your personal circumstances. A qualified wealth manager may assist you regarding this matter. See Wealth Management for Expats in Hong Kong.

On the stock market, your emotions are your enemy. You must control them rather than let them control you. Do not, under any circumstances, let (natural) psychological factors make you take irrational decisions.

Overseas investments generally

If you wish to invest in overseas assets, there are a few points you need to check:

  • Financial transactions taxes
  • Inheritance tax considerations
  • Asset liquidity
  • Broker’s fees (pricing structures may vary greatly from one jurisdiction to another)
  • Foreign withholding or income taxes
  • Yields available on foreign investments
  • Any foreign financial restrictions or barriers (including fees for international money transfers), and
  • Foreign currency exposure. See Foreign Exchange for Expats in Hong Kong

Retaining overseas assets might be helpful if you plan to return to your home country.

Foreign currency investments

Expatriates may also consider buying foreign currency (FX) assets as a hedge against any further Hong Kong dollar depreciation. FX markets are the most liquid markets in the world, and they are influenced by many macroeconomic variables. Foreign currency exposure is highly complex financial engineering, and you might wish to seek professional advice to help you take the right decisions. See Wealth Management for Expats in Hong Kong.

Taxation

Investment income is tax-exempt in Hong Kong. Foreign withholding taxes may be levied on your foreign-source investment income, however. Additionally, investment income may taxable in your home country if you are still resident there for tax purposes.

 

 

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