October 20, 2010
Hong Kong, SAR
Something really interesting happened today that I want to share with you.
I’m here in Hong Kong on a bit of business– the Hong Kong monetary authority has made some recent changes to its regulations and I wanted to put some boots on the ground to investigate the situation.
Earlier today I was having a meeting with a broker at a rather large securities firm… I don’t want to say which one, and you’ll see why in a moment.
I was explaining to this very bright young man that I represent a group of foreigners who would be very interested in opening a trading account with his Hong Kong brokerage.
“Very good,” he said. “But are any of them US citizens?”
I’ve been getting this question a lot lately.
Me: “Well, sure, quite a few of them are US citizens, but not all.”
Him: “Oooooh. Well, we cannot open an account for US citizens. Maybe they have another passport?”
Me: “Some of them do, yes.”
Him: “OK good. In that case we can open an account for them, and once I see their other passport I will not know that they are also US citizens, OK? You know the IRB [he meant IRS] in the US? They are veeeeery scaaaaary.”
Me: “You have no idea, buddy.”
I think this conversation makes a very clear case for a second passport, particularly the cost effective residency ones that we’ve made a core topic of your premium service. In fact, it’s such an important topic that I’ll be dedicating an entire day to passports in our upcoming workshop this February.
Everyone can benefit from a second passport– it is, after all, the ultimate ‘get out of jail free’ insurance policy and a great way to prepare for uncertainty.
In case you never need to cash in on this insurance policy, however, many people will find a lot more interesting financial opportunities available to them. Ease of banking is just the tip of the iceberg, and my conversation today reinforced this point.
The most interesting thing about my conversation with the broker, though, was how quickly his mind turned to the idea of second passports. In this part of the world, it’s completely normal for someone to diversify his/her sovereign risk by acquiring another nationality.
Many here in Hong Kong try to do the same thing, and the broker told me that there are a lot of mainland Chinese who very quietly pursue alternate nationalities. They might be extremely confident in their economic prospects, but they’re still planting multiple flags to diversify risk.
I have personally seen this with my own eyes– crowded offshore conferences in Shanghai and Hong Kong, packed with wealthy Chinese looking at the economic citizenship programs in St. Kitts.
Many Chinese are also in Hong Kong planting financial flags. It’s commplace for Chinese business owners to have a Hong Kong bank account, and the Chinese government has recently made it very easy to conduct cross-border settlement between Hong Kong and the mainland– I’ll have more later on this implication.
The thing that I have seen on the ground, though, is a disproportionate amount of mainlanders in the shops and banks buying physical gold for storage here in Hong Kong.
In Asia, it’s common to use a measurement for gold called a Tael, which is roughly 1.215 troy ounces. They sell locally minted products at 990 fineness at very low premiums: at one of the banks I visited, the premium was only 5 HKD (less than a buck) plus 1% above spot.
9999 fineness (Maple Leaf coins and the like) sell for a bit more, but not much.
This morning I saw mainlanders scooping up these deals like it was the day after Thanksgiving in Wal Mart. They don’t take the gold back to China, they leave it here at a number of banks or facilities. Secure storage is in such high demand, in fact, that there is a 5-year waiting list for larger boxes.
Banks in Hong Kong have responded with some innovative products– they offer deposit accounts that are denominated in gold (taels), and on top of this they also offer a line of credit for up to 70% of the bullion on deposit.
Westerns tend to use GoldMoney.com to have a physical/digital gold linkage, but quite frankly they’re far behind what Asian banks are offering. More to follow.