iBonds race past HSBC

Editorial | Mary Ma 9 Oct 2020

Financial Secretary Paul Chan Mo-po's plan to issue a new round of iBonds helps to raise an unlikely but interesting question: between HSBC and iBonds, which is the better buy?

Assured of a yield of no less than 2 percent, the iBonds due to be issued next month are surely way more attractive than those issued previously.

Since the first batch was sold to Hong Kong residents in 2011, the guaranteed minimum yield had been held steady at 1 percent, which, while better than the fixed deposit rates being offered up by some local banks, was unattractive to most investors.

At 2 percent, would some people have a change of heart - especially those loyalists still holding on to HSBC shares?

Aside from active investors who prefer trading directly for higher gains to seeking the safety that iBonds offer, the financial secretary's bonds appeal to that conservative group who would be content with an assured return payable every six months.

The latest iBond exercise, the seventh since 2011, will be open for subscription from October 23 to November 5 for issuance on November 16.

Given the official backing, the three-year bonds are effectively riskless, unless the SAR government goes bankrupt that, as far as the normal mind can reach, is next to impossible.

People investing in the iBonds basically look for two things.

In addition to receiving a reasonable return, they want a sense of financial security.

How is a 2-percent return supposed to be understood?

It is roughly about the level of returns that a landlord can expect from a rental property under current market conditions here. That is not bad, is it?

In its heyday, HSBC offered reasonable returns and a sense of financial security. Or even more. Its proactive dividend policy and probable capital gains through stock price appreciation helped to create a sense of security that was reassuring for even the most conservative of investors. Housewives and retirees were among the bank's most loyal fans.

However, given the weak market sentiment prevailing these days and the unexpected suspension of its long-standing dividend policy, HSBC is no longer the solid bank of old for investors.

The iBonds will have a three-year period. Of course, nobody knows what the stock market will be like three years from now, but I do know that on October 9, 2017, HSBC's share price was HK$77.20 a share. Three years to the day yesterday, it was HK$31.40 per share.

Naturally, the stock market offers the kind of opportunity that iBonds can never offer.

In the event of a Joe Biden victory in the US presidential election, Wall Street may crash, but the political pressure on China and the SAR would ease so much so that it may bring support for the local stock market and HSBC.

By the same token, pressure could keep rising on Hong Kong and HSBC if Donald Trump unfortunately wins a second term.

It's timely to issue the iBonds at this juncture, giving Hongkongers one more choice. Some credit certainly should also go to the chief editor who had raised the idea during an informal reception hosted by the financial chief.

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