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Many headlines have been generated by the vertiginous falls in global stock markets on the back of the coronavirus. Nearly every major country’s stocks have entered a bear market. This is defined as a fall of more than 20% from its recent high.
However, what is perhaps less well appreciated is how strong the US dollar has become. Typically, in times of distress the US dollar is seen as a “safe haven” asset.
So why does that matter for Hong Kong investors? Well, the US dollar and Hong Kong dollar are pegged between a range of 7.75-7.85 Hong Kong dollars to every US dollar.
Nearly every global currency has fallen significantly versus the greenback. What this means is that international shares – which have already been hammered down – are now even cheaper for Hong Kong-based investors.
Investment opportunities amid chaos
As investors look to pick up bargains, investors in Hong Kong are in an enviable position. You have shares that been seen their prices come down while their currencies have also declined in unison.
That gives bargain hunters in Hong Kong two positives – lower share prices and a better currency conversion rate.
Take the UK for example. The British pound recently declined to a 30-year low versus the US dollar (which also means a de facto low against the Hong Kong dollar).
Remember the days when the pound was equal to around HK$12? Those days are long gone. Currently, one pound sterling only costs HK$9.11.
The same is also true in Australia – which itself offers a sizeable stock market. One Australian dollar used to be around HK$5.60 a year ago but now trades at just HK$4.58. That’s a decline of nearly 20% versus the Hong Kong dollar.
The same goes for Singapore. One Singapore dollar used to trade at around HK$5.80 but has now come down to around HK$5.35. In Singapore, many attractive REITs exist that have seen unit prices decline significantly yet continue to offer a solid dividend yield.
Look beyond home bias
For investors willing to look beyond their own home markets, there will certainly be opportunities. This could be an opportune time for Hong Kong-based investors who have ample cash in Hong Kong dollars to perhaps diversify their holdings.
No doubt, we are now at the end of this coronavirus-induced volatility for markets. But investors who have Hong Kong dollars definitely have an attractive long-term opportunity right now to pick up stocks in international markets at a huge discount.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.