Currency, gold and brick - which is more reliable?

As tension between North Korea and the US keeps escalating, war has become an increasing possibility. Experience tells us that in wartime, currencies and banknotes can become useless paper at any moment, while gold remains a safe investment. Widely deemed a reliable hedge against inflation and uncertainty, especially in times of war, gold is experiencing a price surge with the looming crisis on the Korean Peninsula. However, in peaceful times, people tend not to stock gold as a store of wealth for it earns no interest.

>> You might have interested in: Excessive land supply leads to housing price dip?

Now let’s turn our attention to currencies. A few years back, Renminbi enjoyed a far higher interest rate than the HKD; as a result, the total yuan deposits in Hong Kong at one point surpassed RMB1,000 billion. However, with China’s economic growth rate slowing down, the exchange rate between RMB and USD dropped by 10% in 2016, while the total yuan deposits in Hong Kong took a dramatic nosedive to around RMB500 billion, causing great losses for Hong Kong investors. Despite the recent stabilization of RMB, Hongkongers no longer have faith in it as a hedge currency. 

On the other hand, while the US dollar’s role as the major international currency and is likely to stay strong in the future, but since HKD is pegged to USD, most Hong Kong people don’t see a difference between holding HKD and USD, and normally won’t switch to USD as a main savings currency.

The property market is warming up, and some experts have noticed that Chinese investors are a contributing force behind the phenomenon. Chinese property buyers are making their marks across the globe, from Vancouver and Toronto in Canada, to major cities in Australia. In addition, on top of being a popular tourist destination, London has also become a hotspot for property purchases for the Chinese. Drawn by the attractive home prices, a bevy of Chinese buyers are dropping big dollars in London’s housing market, some of whom even made purchases without any bargaining. The result is that local residents find it increasingly difficult to afford homes in their own cities, and the local government has to introduce measures to rein in the soaring housing prices.

So why is real estate the preferred hedge for Chinese people? There must be reasons other than traditional wisdom. After discussing this matter with a few successful mainland friends and family relatives, each with multiple properties in the mainland, I learnt that while their income keeps increasing, most mainland cities have introduced restrictive regulations on home-buying, so they decided to invest overseas. They add that no matter what currency you have in hand, it’s only a matter of time that its value fluctuation causes losses; meanwhile, if you invest in real estate, you can either live in your own homes or collect rent, and those able to hold on to the properties in the long-term can potentially see much higher returns. Therefore, investing in the overseas property market is a no-brainer, and Hong Kong is the first stop of their journey. For them, it is no different than Hong Kong people buying real estate in the Pearl Delta area as future retirement homes.

>> Previous issue: High mortgage rate is a catalyst for rising home prices