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2819.hk / SHV ETFs as alternative to cash?

  1. #11

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    @shri no worries....I wondered why that happened

    Anyway to fix what I wanted to fix, because I've missed the 30min edit period: comparing NAV on 2819 vs SHV it does seem SHV makes some sense on short term cash, especially since (as jrkob points out) no tax is withheld and the NAV seems stable:




    Although right now if you ask them, BEA, SCB, HS, Dah Sing all offering between 1.3 and 2.0% on HKD term deposits depending on amount and tenure. BOC and HSBC still paying peanuts though. Best I found was 2% at SCB for 18 months on HKD1M (only 500k is insured I believe).

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  2. #12

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    Quote Originally Posted by z754103
    Great summary overall. I'd actually nuance 2821 a bit more. Small (e.g. Singapore!) to medium credit risk (countries like Phil and Indonesia in there, and don't forget Malaysia's history of capital controls when under pressure in Asian financial crisis), high sensitivity to local currency interest rates (duration above 6 years!). I personally would say low sensitivity to US rates, but if you're factoring US rates indirectly influencing Asia economies, I can give you medium sensitivity :-). At any rate, sensitivity to local rates/inflation expectations in these countries will be higher than to US.
    - I would agree with you if 2821 was an ETF buying into bonds denominated in hard currencies. But this isn't the case, it buys into local currency (RMB, IDR, PHP, MYR, THB, KRW, SGD and HKD) bonds exclusively.
    Thus, the reason why I categorized this ETF as extremely small credit risk is because it is considerably harder for governments to default on bonds denominated in their local currency because unless they run out of trees, they should be able to print enough money to repay. Something they cannot do in hard currencies. Defaults in local currency can happen, but are a lot rarer.

    In fact most Asian countries have pretty much stopped issuing bonds in hard currencies since the mid-2000s and only issue bonds in local currency. In the above list, I believe only Korea still has bonds issued in hard currencies.

    - yes, bonds issued in the first 6 of the above currencies are subject to withholding tax, withheld by the fund, and factored into the NAV.

    - SHV has a lower headline management fee but when adjusted for risk/return, 2819 looks better to me.

    @xhkge, there are 2 main ways of doing this. In a fund that is 100% invested in tax-exempt securities, the manager can file the same immediately and the withholding tax agent doesn't withhold anything. I do not own SHV presently so cannot confirm, but I believe it would fall in this category.
    In a fund that invests in a mixed bag of tax exempt and tax non-exempt securities, personally I have always been withheld by my brokers the full 30% upfront, but then after fiscal year-end, I am being reimbursed the portion that I should not have been withheld. So it's a matter of timing but eventually I do get the proper tax treatment.

    I share your view that 2819's volatility is too high to make it a true alternative to cash.
    Last edited by jrkob; 24-04-2018 at 12:17 PM.
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  3. #13

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    Quote Originally Posted by jrkob
    In fact most Asian countries have pretty much stopped issuing bonds in hard currencies since the mid-2000s and only issue bonds in local currency. In the above list, I believe only Korea still has bonds issued in hard currencies.
    Not arguing - but we very very very briefly discussed this over drinks (not discussed, I ranted about local currency bonds being 300 dimension chess vs USD bonds being 3 dimensional). I'm also probably walking into the wrong thread - just saw something about USD / local currency bonds.

    Found quite a few sovereign bonds on the IEMB holdings from Asia.

    Some country / ISINS. I think some more info about the ISINs can be found on cbonds.com - have really not looked into the credit ratings etc .. just some casual research on local v/s USD currency bonds

    China: XS1706605281
    Malaysia: USY54788AA57
    Phil: US718286AY36 ( and a shit ton more)
    Indonesia: USY20721AL30
    Vietnam: USY9384RAA87
    Sri Lanka: USY8137FAE89

    Etc etc ...

    Would it be fair to say for local currency bond, the credit risk may be low, but exchange rate risk is higher.
    With USD bonds, the exchange risk is lower but credit risk is marginally higher
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  4. #14

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    @shri ok... I got carried away some Asian countries still issue foreign currency bonds but at a much slower pace than before vs local currency bonds (that's the most important part of what I want to say). Foreign currency bonds have largely been replaced by local currency bonds in Asia.

    Here are a few examples:
    => Malaysia has 5 bonds in hard currencies totaling USD3.8b in notional.
    At the same time, it has bonds in MYR totaling USD160b in notional.
    => China has 6 bonds in hard currencies totaling USD11b in notional.
    At the same time, it has RMB bonds totaling USD1,400b in notional.
    etc etc

    Foreign currency bonds now represent a tiny portion of bonds issued by Asian governments and in many of them (most ?) have become anecdotal, once again... vs local currency bonds.

    local currency bonds: in my view very low credit risk and high exchange risk
    USD bonds issued by the same issuer: no exchange risk if your base currency is USD and higher credit risk yes

    I think local currency bonds are not easy to analyse for retail. Regulations, taxes etc... change a lot faster than global bonds and is less publicized. Documentation also isn't always available in English.

    Last edited by jrkob; 24-04-2018 at 01:12 PM.
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  5. #15

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    Who is happy with 1.34% return? What a joke.


  6. #16

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    Quote Originally Posted by Paxbritannia
    Who is happy with 1.34% return? What a joke.
    Anyone who does not want what happened to GOOG / AMZN last night, assuming they were retiring this morning?
    Have a GeoExpat related problem - please create a support ticket.

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