Things that make you go hmm… Two data points from the HK property market

Kung Hei Fat Choy. The Year of the Dog is almost upon us. With all the preparation ahead of Chinese New Year and the flu season, I have been running around like a chicken with its head cut off (pun intended and reference to the outgoing Year of the Rooster).

How does the math work?

This week, we are just going to keep it brief and share two bits of news on the Hong Kong property market that I find very difficult to reconcile.

Datapoint #1 – Financing for The Center

The first datapoint is from the financing arrangement for the HK$40.2bn purchase of The Center (a Grade A office building in fringe Central).

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According to the Hong Kong Economic Journal, the purchasers are in the process of arranging a US$2.05bn (HK$16bn) three-year loan. In order to boost interest from lenders, the interest rate has been adjusted up from HIBOR plus 140bps to HIBOR plus 160bps. Although one month interbank rates have recently fallen to 0.65%, they were as high as 1.16% as of 2 January 2018. For 2018-to-date, one month HIBOR has averaged 0.91% suggesting that the interest rate for this US$2.05bn loan should be around 2.51%

In addition to the three-year loan, the purchasers are also arranging a one year mezzanine loan of HK$16.5bn at 8.0%.  YES, 8.0%.

Datapoint #2 – Landlord Cuts Retail Rent by 60% for New Tenant

The second datapoint relates to the letting of a storefront in Fringe Central. According to the Hong Kong Economic Journal, a street front store in Lyndhurst Terrace has just been let for HK$85,000/month. The new tenant is a wine shop who has signed a three-year lease. The previous tenant ran a perfume shop and had been paying HK$200,000/month.

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Over the past 3.5 years, the rent has fallen by 57.5%. As the shop was purchased for HK$91.2mn in 2012, the new HK$85,000/month rent works out to a gross yield of 1.1%. Over the past three years, the passing yield has compressed from 2.6% to 1.1%.

How do you reconcile these without using the “Trophy Asset” argument?

When I read these two stories, I just scratch my head on how the math would work here. You’ve got a consortium buying a “Trophy Asset” for HK$40.2bn and seemingly financing 81% of the price with short-term money (one and three-year loans). With interest rates going up and Central banks winding down QE and starting to reduce their balance sheet, it seems likely that financing costs would only go up when the loans rollover.

Secondly, as the retail shop example show, rents do not always go up. For the shop owner who had bought in 2012 hoping that the 2.6% entry-yield could be improved with rental increases, rather than rising, the entry yield has more than halved to 1.1%. Unless it was an all-cash purchase, otherwise, it must be a negative carry now.

Now, I know the die-hard bulls would argue that the price has gone up and hence the capital gains have more than offset the rental decline. But if current yields are only 1.1% and the latest lease has shown that the fairy tale of ever rising rents is clearly broken, what would entice the next Greater Fool to up the next bid?

As the tide of easy money start to recede, we will soon find out who’s been swimming without their swimming trunks on.

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TGIF: Lessons from the “Salty Kumquat”

What do you think of when you hear “Chinese New Year” and “Flu Season”?


If you grew up in Hong Kong, you might be thinking about of 鹹金橘 or “Salty Kumquat”. This traditional home remedy does wonders for sore throats and colds. As for the reasons why, it’s simple.

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First, the Kumquat is a citrus fruit, hence it should contain Vitamin C like oranges and lemons.

Second, as the kumquat is preserved in salt, the high sodium content acts as an antiseptic.

Like a fine wine, you can’t rush a fine kumquat

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Although it would just be like your doctor giving you Vitamin C and asking you to gargle with salt water, I think the “salty kumquat” just seems to work better.

But there’s a catch. You won’t find “Salty kumquats” in your neighbourhood grocery store. You see, the “salty kumquat” needs to go through an ageing process and many would agree that the older the salty kumquats become, the better and more effective they are.

So every year, after Chinese New Year has passed, families would pluck the kumquat off their potted plant and salt them. And just like a fine wine, you can’t rush the process.

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Salty Kumquat after ONE YEAR

And then after another 1,095 days….

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Salty kumquat after FOUR YEARS

Till eventually, it becomes something like this.

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Salty kumquat after 20+ YEARS

At this point, it is so precious that you don’t even want to consume it.

Just be Patient and Trust the Process

So how does the “Salty Kumquat” connect to all the other posts?

It’s just a reminder to be patient and trust the process. Like the salty kumquat, investments also need time to play out. There could be long period where nothing seems to be happening. If you check on your salty kumquat everyday then good luck. Don’t poke it, don’t shake, instead just give it time and trust the process.

But before we conclude, the salty kumquat holds one more lesson. Be meticulous with your preparation. The first time that we tried to make it, our batch turned mouldy and had to be thrown out. Just like doing proper research on an investment idea, you’ve got to prepare the kumquat meticulously. We flash boiled, wiped them then air-dried for a few days. And in this initial stage, you do want to check on it regularly to make sure that the salt is covering the kumquat. But once that is done, just sit back and relax cause worrying won’t make the process go any faster.

Here’s to good health and a flu-free Year of the Dog!


TGIF: Hmmn, I never knew that – Squats

It’s been a while since we  have done a funny Friday piece.

I used to see lots of silly stuff like the “facial scan for toilet paper” and the “umbrella sharing scheme”. Well, this one is not along the lines of ludicrous ideas but more of the “hmmn, I never knew that” variety.

But first a health warning. I will be talking about toilets and if you are reading this during meal-time, you may want to put down your device and come back later. If you’re ready to “squat” in, scroll past the calming pictures below.

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When you hear the words “squatting” or “squats”, what do you think of?

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For the health nuts, you probably think of the exercise designed to strengthen your thighs, hips, buttocks and your core.

For those obsessed with real estate and finance, they are probably thinking of the illegal occupation of real estate.

But for those who travel to China, one of the most dreaded sights must be that of the squat toilet. Here is a picture of one.

Source: China Highlights

Most of the time, when you see one of these things, the first and likely only thought on your mind is “How do I get out of here as quickly as possible?”

Forwards or backwards?

But for those who have a naturally curious mind, have you ever wondered which direction you’re supposed to face?

This is especially the case when you see one of those squat toilets that have a hood on it like the one shown below.

Source: Wikipedia

What is the hood for? Are you suppose to aim at it? What about splash back?

Well, I got all my questions answered earlier this week and it came from the most unlikely of sources, the Hong Kong Economic Journal. For those unfamiliar with the name, this is Hong Kong’s version of the Wall Street Journal. It’s generally full of good analysis, thoughtful opinions and in this instance great trivial facts.

According to this article, the origin of the squat toilet hood can be traced back to the traditional Japanese outfit. In the old days, people used to dress in the traditional yukatas/kimonos. The hood was meant to prevent the back of the yukata from falling into the squat toilet (see the bottom left of the below picture).

Source: HK Economic Journal

So there you have it. Face forward. Now, get out of there as quickly as you can and Happy Friday!

My Five Golden Rules for 2018

Goodbye 2017, Hello 2018!

It’s hard to believe that another year is over. You know the saying that as you get older, the years seem to zip by faster. As I discussing this with my kids the other day, we found that this is actually mathematically true. If you are eight years old, the past year was equal to 12.5% of your life. But if you are 50 years old, one year is only 2% of your life. So, although one year is 365 days or 525,600 minutes for everyone, how fast time flies is actually very different.

In my previous life, the end of the year is spent on writing outlook and year end reviews. In that spirit, I am sharing my 5 Golden Rules for 2018. In no particular order, here goes:

If you have to choose between time and money, choose time because time is money. This rule evolved from our discussion on which tunnel to take to cross the harbour. In Hong Kong, there are three cross-harbour tunnels. The Hunghom tunnel is the cheapest at HK$20/trip while the Western Harbour Tunnel is the most expensive at HK$65. The Eastern Tunnel costs HK$25 per trip. From a financial perspective, which one should you take? If you take a simplistic view, you should take Hunghom at HK$20 but if you consider the saying that “Time is Money”, the choice of choosing between time and money is actually one in the same. Using this logic, it would argue that the time saved would actually make the more expensive option cheaper. So next time, if Google Maps tells you that you can save 15 mins or more from taking the more expensive option, remember to choose time because “Time is Money”.

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Always say “Hello”. You’re at a street corner and you see this guy that you know. You don’t really feel like saying hi because (i) you don’t really know this person all that well, (ii) you’re not really dressed properly, or (iii) whatever. There are usually a million reasons BUT there is really no excuse. Chances are the other person has noticed you too. One of the lessons that I learnt from an old work colleague is to always say “hello”. It’s a simple five letter word but it does wonder to boost goodwill and how one is perceived, so always CHOOSE TO SAY HELLO!

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CHOOSE to PARTICIPATE. This third rule is not for everyone. Extroverts who spread themselves too thin may well have to do the opposite and opt for more quiet time. But for introverts that tend to avoid parties, if you find yourself debating whether to go to a function or not, GO. It may not always work but if you never take a risk, then you never gain anything.

The 90 day refund period. This fourth rule came from the Youtube interview that I watched with Adam Richman of Man Vs Food. He was talking about meaningful weight-loss and that it take 4-weeks for you to notice a difference, 8-weeks for family and friends to notice and 12 weeks for everyone else.90dayguarantee I think that this is true not only of weight loss but for almost anything. If you give yourself 90 days to try something new, it is long enough that the novelty has worn off. Yet, it is long enough for some progress to be made, especially considering plateau periods. If at the end of the 90 day period, you still don’t like something, try something else but don’t give up too soon.

Trust the Process.Everyone has a plan until they get hit in the face.” This was a great quote from Mike Tyson. Although the quote seems to suggest the futility of making plans, I think it is the precise opposite. The second part of the quote actually follows with “Then, like a rat, they stop in fear and freeze.” In the context of investments, this is actually why processes are so important. When the stuff hits the fan, you just can’t trust your emotions. Yes, there is the famous saying about “Being greedy when others are fearful and fearful when others are greedy” but how do you know whether you’re the greedy one or the fearful one?

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Finally, in the spirit of Year Beginning Forecasts, remember this Golden Rule – “If you give a target, don’t give a timeframe. If you give a timeframe, don’t give a target.” With that, I think I am in the clear for the next 365 days. Happy 2018.

London Calling? Summer Visits up 6%, Spending Up 4%

This past summer, we visited London. One of the impression that we shared from our trip was that it seemed like everyone was there. Our guess was that the cheaper currency was one key reason why London was 2017 hot travel destination.

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Were our impressions correct? Did everyone go to London for holidays this past summer? We’ve had to wait for a while but the statistics are finally in.

The answer is YES and NO.

Summer Visits Up 6% YoY, Spending up 4%

According to the latest monthly inbound tourism data from, there were 3.9mn visits to Britain in August 2017. Over the three summer months of June to August, there were 11.5mn tourist visits, up 6% YoY. Tourist spending reached £7.8bn between June and August 2017, up 4% YoY.

Looking at the trailing 12 months data ending August 2017, 39.65mn visited Britain and spent £24.01bn. Tourist visits and spending rose by 8% and 7% over the same period last year and are the highest that they have ever been.

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…but the growth rate is really slowing

While tourist arrivals and spending have continue to set new records, the bad news is that the growth rate is slowing rapidly. Compared to the first four months of 2017, when tourist arrivals had risen 11% YoY and spending had grown 14% YoY, the cumulative growth rate over 8M 2017 has now slowed to 8% and 10% respectively.

For the latest three months data, the rolling visit and spending growth was only 6% and 4%, lower than the Feb-April 2017 growth of 11% and 14% respectively. This suggest that as we come to the one year anniversary of the Brexit vote, the draw of the cheaper currency may be starting to fade.

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Source: Yahoo Finance

On the other hand, business is picking up

Although holiday visitors are still growing the fastest with 8M 2017 growth at 17%, the rate of increase has dropped off by 9pp since 4M 2017’s 26% YoY growth. Similarly, those visiting family and relatives as well as miscellaneous purposes have also slowed by 2pp and 10pp respectively. Notably, the only category that has improved since April are the business travellers. Compared to the -4% YoY decline noted in 4M 2017, the rate of decline has now slowed to -1%, suggesting that business visits are resuming despite the uncertainty with Brexit.chart (36)

…so are visits from North America and Other EU countries

In addition to business visits, the regional breakdown of visitors also show that arrivals from North America and Other EU countries have accelerated over the summer months. Compared to 4M 2017’s 16% YoY growth, North American visitors growth picked up another 2pp to 18% for 8M 2017. This was largely due to very strong visitor growth in May-July as August North American visitors actually dropped by 8% YoY. The biggest swing however was from Other EU countries which went from -5% in 4M 2017 to +7% in 8M 2017.

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Overall, still a good set of numbers just don’t project too far ahead

Overall, despite the slower rate of growth, the summer tourist figures are still very good. For the trailing 12 months ending August 2017, both total visitors (39.65mn) and visitor spending (£24.0bn) are all-time highs. And compared to 2014 and 2015, visitors/spending are up 15%/9% and 10%/9% respectively . That said, with growth rate slowing, just don’t project too far ahead.

chart (38)

Anyone want to venture a guess what’s the next popular summer vacation spot? My bet is on the US.

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How instant noodles reflect where you’re from?

When I say “Instant Noodles”, what’s the first image that comes to your mind?

Do you think of the cake of instant noodles that you cook in boiling water and add the packet of MSG? Or do you think of something more along the lines of “Cup noodles?”

Your choice of instant noodle says a lot about you

Before we go into how the type of instant noodle reflect who you are, let’s start by firstly reviewing the instant noodle market in Hong Kong and China.

Instant Noodle Market Growth is Anaemic in both HK & China

According to an industry report from Frost & Sullivan, Hong Kong’s instant noodle market was worth around HK$1.8bn. Over the past four years, growth has been anaemic with sales value only rising 0.5% p.a. while sales volumes have actually contracted by 1.3% p.a.

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Although China’s instant noodle market is much bigger, it is also not growing much. The Rmb81bn of instant noodle sales in 2016 only represent a p.a. growth rate of 0.4% over the 2012-2016 period. Volume wise, the number of instant noodle serving has actually fallen by 3.9% p.a.

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Who eats more instant noodles?

In absolute terms, China’s 37.2bn serving of instant noodles is 90x larger than Hong Kong’s 415mn servings. However, if you consider that China’s 1.3bn population is actually 186x larger than Hong Kong’s 7 mn population, the data actually shows that Hong Kong people actually eat more instant noodle than their mainland cousins.

HK 59.2 servings Vs. China 28.6 servings

In 2016, Hong Kong people ate 59.2 servings of instant noodles, almost twice as much as the average 28.6 servings consumed by those in China.

chart (24)

What do you eat? Cups, Bowls or Bags

When we examine the data further, we see another interesting distinction between Hong Kong and China’s instant noodle connoisseurs. In Hong Kong, bag-type instant noodles make up nearly two-thirds of the overall sales volume. In China, the mix is almost 50/50 with bags taking up 53% of sales.

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In this respect, if you associate instant noodle with those that come in a little plastic bag that you cook yourself, then you’re most likely from Hong Kong. Conversely, if you think about pouring water into a little cup/bowl then you’re most likely from China.

What brand do you prefer? 出前一丁 or 康師傅

If you go to a Cha Chan Teng in Hong Kong and order instant noodle for breakfast, you are usually given a choice of upgrading to 丁麵 (Demae Iccho) for a few extra bucks. But what you may not realise is that in Hong Kong, 出前一丁, 公仔麵, 福麵 and Cup Noodles are all carried by Nissin Foods.

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The multiple brand strategy has helped Nissin Group become a clear leader in the Hong Kong market with a market share of 65.3%. Nong Shim (maker of Shim Ramyun) and Sau Tao, are a very distant second and third and only have a 5.5% and 5.4% market share respectively.

In China, the names are very different. Taiwanese noodle makers like Tingyi (康師傅) and Uni-President dominate the instant noodle market and hold market shares of 46.5% and 17.8% respectively. Nissin Foods is much smaller and only holds a market share of 2.8%.

chart (21)

So if you associate instant noodle with Cup Noodle and 出前一丁, you’re most likely from Hong Kong. On the other hand, if you think of 康師傅 or 來一客, then you are most likely from China.

These two distinction is even more stark when you consider the revenue breakdown of Nissin Foods in the two areas. In Hong Kong, the revenue split between Bag type instant noodles, cup/bowl type and frozen foods are almost even at 39/28/33. Whereas, in China, the revenue split for Nissin Foods is 85/13/2 .

chart (20)

The Premium-isation of Instant Noodles

In a way, China’s instant noodle market is very unique. Unlike the other industries that we have looked at in our Mass Consumption series (travel, beer, coffee and fried chicken, online games), the instant noodle market is NOT growing. In fact, Frost and Sullivan forecast that the number of instant noodle servings will decline from 2016’s 37.2bn to 34.5bn in 2021E.

With volume in decline, the only way to make more money is to try to raise ASP through the premium-isation of instant noodles.

As the bowls get bigger…

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…and fancier…


…so does the ASP. In China, over the past four years, the average selling price of instant noodles have risen by 4.4% p.a. since 2012 (faster than Hong Kong’s 1.75% ASP growth). chart (16)

However, with the “Big Cup” noodle now weighing in 80 grams, 450 calories and 1,600mg of sodium, I suspect this premium-isation trend could be hard to sustain. Furthermore, while the past few years’ increase in ASP appear to have helped with gross profit margins, the benefits do not appear to have flowed to the bottom line.

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I am Satay Flavour出前一丁

As for me, I’ve been told that I make the best instant noodles with the exact right balance of soup to noodle. If I had to choose one type of noodle to eat, it would be the satay flavour 出前一丁.

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Now what does that say about me?


P.S. In the first collage, there is one picture that does not belong, can you spot it.

Alibaba – The Internet Giant Vs. the Tale from Arabian Nights

What do you think of when you hear the word “Alibaba”?

The US$488bn Internet Giant

I reckon that most of you would be thinking of Jack Ma and the massive e-commerce giant behind TaoBao, T-Mall and the recent Singles Day which generated US$25.3bn online sales within 24 hours.

But Alibaba is really much more than just TaoBao and TMALL, the overall group (including the non-listed side) also includes a logistics network (Cainiao) and a financial services group (via Ant Financial and AliPay).

Alibaba’s vision statement is: “We aim to build the future infrastructure of commerce. We envision that our customers will meet, work and live at Alibaba, and that we will be a company that lasts at least 102 years.

But how you ever thought of “Why Alibaba?”. Is there any special meaning behind the name?

The Tale from Arabian Nights


This thought occurred to me when my daughter recently asked me to read her “The Tale of Ali Baba and the Forty Thieves”. Although I can recall some parts of the story like “Open Sesame”, I had forgotten much of the details and often confuse Ali Baba with Aladdin.

I’m not sure if the version I read is accurate to the original tale but some parts of the story struck me.

  • Ali Baba was the younger of two brothers. His elder brother Qasim was the one that had great skill in buying and selling and was one of the richest men in Baghdad. Ali Baba on the other hand was a humble woodcutter.
  • Ali Baba came upon his wealth when he stumbled upon the magical cave where the Forty Thieves stored their loot. This is where the phrase “Open Sesame” came from. He took three sacks of gold dinars out of the cavern and took it home on his donkey.
  • When Ali Baba’s wife and son asked him “where did you find such wealth?”, he said, “I may not tell you except to say that I broke no law, nor did I rob any honest man.”
  • When Qasim found out, he gave Ali Baba no peace until he revealed the secret of the cave.
  • But Qasim was greedy. He brought 12 mules to carry the loot away but unfortunately once he was inside the cave, he forgot the last word of the charm and was locked inside. The thieves came back, found him and killed him.
  • Ali Baba went to look for his brother and found him dead in the cave. He brought home Qasim’s body as well as the the coins and jewels that  his brother had tried to steal from the cave.
  • In order to evade the attention and deal with the forty thieves, Alibaba had a trusted helper, Marghana.
  • Since Qasim had no children, Ali Baba inherited his household and all his wealth, making him the richest man in Baghdad.
  • When the leader of the forty thieves came posing as a fine oil merchant, Ali Baba actually invited him into his household. The rest of the forty thieves hid in oil jars.
  • Once again, it fell on Marghana to discover and foil the evil plot of the forty thieves. She poured hot oil into the jars where the forty thieves hid and then she killed the leader of the forty thieves.

“Ali Baba’s wealth knew no bounds”

When I sat back and thought about this story, I wondered if these might be some interesting parallels.

  • Ali Baba came upon his wealth by accident. His older brother was actually more talented but Qasim had bad intentions.
  • When Ali Baba took the three sacks for gold dinar from the cave, he said “I broke no law, nor did I rob any honest man.” This made me think of a statement from Amazon’s founder who said “Your margin is my opportunity”. In a very similar way, Alibaba’s business is to reduce the friction of commerce, thereby reducing the high margins of the entrenched businesses (i.e. the Forty Thieves).
  • Marghana, his trusted helper, was essential to Ali Baba in helping him evade the Forty Thieves. I think in this case, Marghana is the Internet. Without the proliferation of the internet, it would not be possible to combat/disrupt the entrenched businesses.

Here’s the most interest part.

  • From that day on, Ali Baba’s wealth knew no bounds, for now that the forty thieves were dead, all the treasures of their cavern belonged to him.”

I guess that’s why he chose the name Alibaba.