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SOVEREIGN MAN

Guest Post: Hong Kong and Macau undervalued

[Editor's Note: Tim Staermose is filling in for Simon today from Macau]

June 3, 2011
Macau

When you read these reports about the “most expensive places in the world,” there are a few that routinely top the lists. Hong Kong is one. Macau, with its glitzy and glamorous lifestyle, is starting to make an appearance as well. Real estate aside, these places are actually quite cheap.

To give you an idea about cost of living, a long seafood lunch here in Macau for 3 people with about 4 courses, washed down with beer and two bottles of Portuguese wine, came to less than US$75 in total. This was in one of Macau’s most charming, world-renowned seafood restaurants.

Our hotel, an old-world, colonial-style complex affiliated with the Macau Institute for Tourism Education, cost all of US$77 a night. There were no taxes or service charges, and the price included a full, cooked breakfast and complimentary welcome drinks for two.

We took taxis all over Macau and never paid more than US$12 for a fare. An exquisite main course in the private dining room at Clube Militar de Macau, where my friend has access, was only about US$18. Not bad for a true five-star experience.

There are many places in the world where the same thing will cost you 3 or 4 times that much nowadays.

Regarding Hong Kong, Simon and I were talking recently and he remarked how, during his last trip to Hong Kong (Central), he spent less than $20 one afternoon on lunch, a haircut, his dry cleaning, and a few incidental groceries.

As a Hong Kong permanent resident, my own experiences outside of real estate have been similar.

These low living costs in US dollar-linked currencies such as the Hong Kong Dollar and Macau Pataca (which are used interchangeably in the former Portuguese colony) may be due for a bounce.

Over the medium to long-run, the theory of purchasing power parity says that, setting aside any local price distortions such as taxes, similar goods and services of the same quality should generally be priced at about the same level over time, no matter where in the world you find yourself.

This is the same theory that drive the Economist’s famous “Big Mac Index.”

On this basis right now, places such as Hong Kong and Macau are cheap, which means that they’re terribly undervalued. Cost of living disparities are the market’s way of putting pressure on exchange rates and suggest that these rates should rise.

I’ve argued before that holding Hong Kong dollars gives US dollar holders a free ‘call option’ on a rise in the HK dollar. If Hong Kong maintains its peg, you have lost nothing in USD terms. If Hong Kong succumbs to the market and raises the exchange rate, you stand to gain.

Meanwhile, if you’re looking for a great, surprisingly cheap place to spend time, give this part of the world a try, especially Macau.

About the author: Born to a Danish father and British mother, in Dar Es Salaam, Tanzania, Tim Staermose has led an international life since the day he was born. Growing up, he also lived in Egypt, Denmark, and Singapore, before eventually settling in Australia, where he completed his education and took out citizenship. Since then he has also lived and worked in Hong Kong, and Manila, Philippines, in the field of equity research — both for a bulge-bracket Wall Street investment bank, and for an independent investment research firm. Today, when not traveling the globe looking for investment and business opportunities for the Sovereign Man community and catching up with his diverse, multinational group of friends, he divides his time between Hong Kong, and the Philippines.

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Comments on this entry are closed.

  • Leopold

    How about gaining permanent residency in Macau? Do they have any retirement or investment visas?

  • http://www.animalsdinosaursandbugs.com/The-Future.htm Peter Legrove

    I used to live in HK now I live in Guangzhou China and I think now Guangzhou has surpassed HK and is the place to be. So if you are planning a trip to Asia check out China and see what the next superpower looks like. And you’ll be amazed. It is cheaper here than HK and I think the food is better. Actually most things are cheaper except brand name goods. So if you are
    into brands HK is cheaper.
    I’ve never been to Macau so I can’t comment. I’m not
    a gambling man. HK is a ‘used to be’ city it used to be a great place but it just got left behind by China’s rise. Now China is the place to be.
    Also I think the HK dollar is a museum piece waiting to happen. I
    can’t see it lasting much longer, as soon as the Renminbi becomes a free exchange currency there will be no need for the HK dollar. I think it will just fade away. At the moment in HK Renminbi accounts seem to be in vogue.
    Singapore should get Renminbi trading next year but I don’t think the Renminbi will replace the Singapore dollar any time soon.

    The HK dollar is pegged to the US dollar so as the US dollar goes down so does the HK dollar. The Renminbi has been appreciating about 5% ayear against the US dollar so it has been appreciating against the HK dollar and now with the interest rates going up in China it is a good idea to put any spare cash in a bank in China.
    Also another thing I don’t like about HK is the government
    deposit protection scheme only covers you up to 500,000HK dollars I think. So it doesn’t pay to have more than that in a HK account. I don’t know if the Chinese govn guarantees your bank deposits but they are so paranoid about social unrest I don’t think they will let banks fail. HK is a different story.

  • Christinasc

    The Real Estate prices are out of control here in HK. So ridiculously inflated.

  • Christinasc

    FWIW, A big mac meal costs more in Shanghai than Hong Kong at the momemnt.

  • HK EXPAT

    Apartments in a middle class  part of Hong Kong rent for USD $5 -$7 per square foot per month. Yeah.. crazy cheap this town…   a house just sold for USD$13,000 psf but that’s high. Try to buy something below $1,700 psf – impossible. crazy cheap… might as well retire here… RIGHT!

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