As our Sovereign Society Far East Investment Tour ends, JUSTIN FORD , publisher, editor and writer of newsletters on global investment, including China, gives us his final thoughts. Justin recently debuted his book Seeds of Wealth in Japan, then traveled with us on our tour in China, which ended yesterday in Hong Kong.
Eight years ago, Hong Kong reverted to life under Chinese sovereignty. Yet, as I wrote on in Friday's A-Letter , Hong Kong still operates largely independently in financial, economic and legal matters. To me, it seems to be the same Hong Kong I saw shortly before the 1997 hand over, except it's even more international, more developed and busier. But don't just take my word for it...
Every year for the last eight years, the conservative Heritage Foundation in Washington, DC, has rated Hong Kong the freest economy in the world. The Cato Institute, the leading libertarian research group, has rated it number one in economic freedom for the last nine years. And Hong Kong consistently ranks at or near the top of everyone's lists of free market economics around the globe.
Why? Here's an overview, as provided yesterday by Andrew Wong of China Global Capital: Hong Kong has low taxes and a simple, predictable tax regime. The top corporate tax rate is just 17.5%. The top personal income tax rate is 15.5%. A personal income tax return is just two pages. No stacks of booklets necessary to make sense of it all.
Capital gains are tax free in Hong Kong. Double your money on a stock, pocket the full 100%. Sell an investment property for a million dollar profit, keep it all. There is also no tax on personal dividends or bank interest. There is no VAT or sales tax.
Setting up a new business is simple. Foreigners who invest are not subject to special regulations or requirements. You can register a company in Hong Kong in an afternoon, open a bank account the same day and have the business operating within a week.
Doing business internationally is simple. Hong Kong has a free flow of money, goods and information. You can receive currency from abroad and send currency offshore without restriction.
There are also no taxes of any kind on foreign-sourced income. Let's say you live in Hong Kong and have a company in the British Virgin Islands or the US state of Delaware. And let's say that company pays you US$5,000 or $50,000 or more every month. That money can go right into your Hong Kong bank account, and you won't have to pay a dime in Hong Kong taxes.
There is a schedule of tariffs for imports into Hong Kong. Like any other country, duties vary, depending on the goods. But tariffs are relatively low. What's more, you can import personal goods without paying taxes of any kind. Buy a Rolex in Switzerland, and you can bring it to Hong Kong with no tax. Import your own BMW from Germany; the state gets nothing. Furnish your Hong Kong flat with Country Pine direct from England...no problem, no tax. "No one cares," Andrew says.
Then there are the many benefits that stem from the fact that Hong Kong has been a global financial hub for decades. English is an official language. The banking and brokerage industry has a long history and was developed largely by the British. The infrastructure overall is on par with any major city in the world.
Being based in Hong Kong can also make it easier to do business and invest in mainland China. In 2004, for instance, Hong Kong and the mainland signed a Closer Economic Partnership Agreement. Now, if you manufacture in Hong Kong and the goods are stamped "Made in Hong Kong," you can sell your goods in China without paying any tariffs.
Hong Kong stockbrokers can also give you advice, in English, on mainland and Hong Kong companies. And you can trade those companies -- as well as companies from most other major markets -- from your Hong Kong brokerage account. From Hong Kong you can also access over 30,000 global mutual funds, compared to about only 8,000 in the US.
Though only 7 million people live here, the stock market is the 9th largest in the world. It has 915 listed companies with a combined market cap of nearly $US 1 trillion, including more than 80 mainland China companies. At the moment, the market also trades at reasonable valuations -- with a P/E of about 14.5 and an average dividend yield of 3.1%.
You can hear Andrew's entire presentation and you get more details about Hong Kong from Andrew's presentation handouts in The Sovereign Society's Far East Financial Expedition Audio Series . But the thing to keep in mind now is that if you're thinking of diversifying offshore, you may seriously want to consider Hong Kong.
It offers a modern, sophisticated and extremely investor-friendly environment. That goes for offshore banking, for establishing a base of operations for direct investment in China, and for gaining greater access to global stock markets -- especially the Asian markets.
Open a Swiss Bank Account in Hong Kong
Prior to joining our group in Beijing ten days ago, Bob Bauman was traveling in other parts of Asia. In Singapore, he had a series of meetings with officials of EFG Bank, a Swiss bank with overseas affiliates in Singapore and Hong Kong, as well as branches in many European and Latin American cities. Importantly, this bank has no branches in the US so it's not under any direct pressure from the US government. Thanks to Bob, The Sovereign Society is now able to offer Convenient Accounts to our members with EFG banks in Singapore and Hong Kong. This offers an extraordinary combination of Swiss asset protection benefits and Asian investment opportunities. You'll learn more about this new service in upcoming A-Letters and issues of our Members Only monthly newsletter, The Sovereign Individual . Become a Sovereign Society member here: http://www.agora-inc.com/reports/SVS/ESVSFB10/
Mexican Nachos and Belgian Beer at Midnight in an Irish Pub in Hong Kong
I was busy writing a Comment for the A-Letter the other night. So I didn't make it to dinner with the group at The Peak Lookout Restaurant. It's situated on The Peak (no surprise), which happens to be the top of a mountain overlooking the city. The Peak is the most expensive real estate in Hong Kong, and therefore some of the most expensive earth in the world. But besides the views and posh address, the restaurant is renowned for its fresh seafood, prepared in both Chinese and Western styles.
I didn't get to sample a bit of it. I sacrificed it all for you, dear reader.
Instead, I finished writing the A-Letter around 11 pm and went out to grab a bite and a beer. I had Mexican Nachos and a couple of Stella Artois in an Irish Pub in the heart of Hong Kong. That's Hong Kong for you. You'll see a mix of colors and races and a variety of foods and music and culture, much as you'll see in New York and Tokyo.
Fact is, I enjoy taking up the challenge of eating what the locals eat. From goat soup to shark fin soup, quail eggs, roasted pigeon, steamed peanuts and boiled chicken feet. I ate it all. We also had dim sum and Peking duck and we had French haute cuisine in M on the Bund, the most talked about restaurant in Shanghai. And yet... after a few weeks of traveling in Japan and China... the nachos and beer were pretty good.
But I don't want to do it again.
Last Saturday we had our farewell diner at the China Club. It's a very exclusive, private club but they let the likes of me in as part of The Sovereign Society group. So I'm going to make this quick.
Here's a rat-a-tat preview of some of the other extraordinary investment and asset protection ideas you'll get in The Sovereign Society's Far East Financial Expedition Audio Series .
The Rolls Royce of Annuities
Yesterday, Marc Sola of NMG International Financial Services, Zurich, showed the group how you can obtain five key financial benefits within a single investment vehicle: Swiss Variable Annuities.
A Swiss Variable Annuity is issued by an insurance company. Technically, you own the policy and the insurance company owns the investments. So, for example, if you owned some American securities in that annuity, you wouldn't have to file a W-9 stateside with the IRS. And you wouldn't have a European withholding tax on your investment gains either. Better yet, you can invest the world over -- even in vehicles that are typically off limits to Americans.
For example, as a rule, offshore hedge funds won't sell to Americans because of SEC regulations and potential tax consequences for the fund. The only way to buy most of these funds is through a trust or variable annuity. This is fine because, again, you don't technically own the investments; the insurance company does. Suddenly, you can own some of the best performing funds in the world. These could include Quantum Fund (George Soros's flagship fund, up over 30% a year over the last 30+ years), the Jayhawk China Fund (asset manager in Connecticut of all places (!) but domiciled in the Caymans and up 35% p.a. since '98) and the Blenheim Fund (a commodity fund up about 30% a year over the last 20 years). What's more, you could have a trust own the insurance policy, providing you with an added layer of privacy and asset protection.
When structured properly, these variable annuities are also tax-deferred and you can "surrender" them (or cash out) at any time. You would be liable for taxes on gains at that time, but your gains could be substantially increased at that time if you had let them compound tax-deferred for a number of years. One requirement for tax deferral, however, is that you not actively manage the investments. Yet, you can choose among the portfolio programs offered by the insurance company.
Marc, in fact, offers investments in portfolios by several veterans members of the Sovereign Society's Panel of Experts. These include Eric Roseman of ENR Asset Management (and editor of Commodity Trend Alert and Global Mutual Fund Investor ); Robert Vrijhof, a talented money manager and senior partner with Weber, Hartman, Vrijhof & Partners, Adliswil Switzerland; and Thomas Fischer of Copenhagen's Jyske Bank.
Mssrs. Vrijhof and Fischer, by the way, both spoke at the Hong Kong segment of our Far East Financial Expedition. Here's a bit of what they had to say...
Low-risk/High-Potential Return Opportunities in Stocks, Bonds and Real Estate in Japan, Turkey and Germany
Thomas Fischer is very bullish on the Japanese stock market. The market has rallied an impressive 36% in the last six months, and yet it is still more than 60% off its previous highs. Thomas particularly likes Japanese banks, which have undergone major restructuring in recent years and are now showing positive equity capital for the first time since 1991!
For property investors, Thomas thinks you'd be hard pressed to find better values than German real estate. Two-bedroom flats in Berlin can be had for $150,000 to $170,000 with rents that make it possible to mortgage the properties on a cash-flow-positive basis.
It's usually very profitable to listen to Thomas's investment ideas. The J. I. Favorite Equity Fund, run by his bank, is up 44% year to date and has Morningstar's highest ranking.
Thomas is also bullish on Turkey as a convergence play, as that country gets its financial house in order and negotiates for possible accession to the EU. And, speaking of Turkey, Robert Vrijhof shared some bond recommendations that were anything but...
Get 14% Yields from Triple-A Government Bonds with Just 18 to 30 Months Maturity
Robert reiterated a recommendation that has been very profitable since he made it in The Sovereign Individual a few months ago: Turkish Sovereign Bonds. There are various maturities available, but the gist of it is that you can get bonds that mature in 2007 or 2008 that currently yield 13%, 14% or better. Plus, you could pick up extra gains from currency appreciation as the dollar weakens and if the Turkish lira strengthens in its own right in anticipation of EU admission.
Robert also recommended a Triple-A rated Icelandic bond currently yielding nearly 10%. Again, you're looking at low-risk/ high returns that could get even better in dollar terms if the greenback resumes its downward trend.
Capital Protection & Profits
Larry Grossman of Sovereign International Asset Management of Palm Harbor, FL, also addressed the group. Larry showed studies proving investment returns are 92% determined by being in the right asset class or sector at the right time. He then showed the group how you can consistently rotate your capital out of overvalued and vulnerable sectors and into undervalued sectors that offer the best reward-to-risk profiles.
Larry revealed the sectors and regions he believes offer the best profit opportunities in today's market. And he discussed hedging strategies you can use in your own portfolio to target absolute returns (that is, positive returns even if the broad market falls).
The investment recommendations of Larry, Robert, Thomas, as well as Chris Mayer and Samson Rattiwat are all part of The Sovereign Society's Far East Financial Expedition Audio Series . The Series also includes the direct investment advice and asset protection and offshore banking recommendations and strategies provided by Bob Bauman, Jack Flader of Zetland Financial Group, Andrew Wong of CG Capital Limited, Dino Zavagno of Hong Kong's Gladstone Morgan...and, of course, the insight on political developments in Hong Kong and China by the Honorable Martin C.M. Lee, Hong Kong's leading pro-democracy legislator.
Order the audio tapes before this Wednesday, November 23nd, and you can get the entire series (including key, detailed presentation handouts) for just $99 for A-Letter readers; $79 for Sovereign Society members. Both prices represent $30 off the full price that will be in effect from Tuesday onwards. To lock in the savings now, click here: LINK: Far East Financial Expedition Audio Series
China is too big a story to ignore. The offshore banking benefits available in Hong Kong are opportunities you should be aware of. And the specific investment recommendations you'll get in the Series could turn out to be the most profitable investments you'll make this year or next.
Regards from Hong Kong,
Justin Ford
PS: I think Kipling was wrong. East and West have met. They're here in Hong Kong. In many ways it's the best of both worlds for an investor. You have the tradition of the rule of law and well developed financial institutions. You're in a dynamic economy that is consistently rated as the freest economy in the world. You have a low-tax offshore banking haven. And you have your foot on the doorstep of the fastest growing economy in the world...with easy access to the rest of Asia. To order The Sovereign Society's Far East Financial Expedition Audio Series at more than a 20% savings, click here: LINK: Far East Financial Expedition Audio Series