Great investment or just herd mentality on HK i-Bonds?

08 June, 2016

Government issued inflation bonds (better known as i-Bonds) are the current flavour of the season for Hong Kongers. The rate for each semi-annual interest payment is set to the year-on-year inflation rate with a lower limit of 1% p.a. The inflation rate in HK is currently 2.8% and the average for the last 35 years has been 4.5%, so i-Bond holders can expect a significantly better return than keeping their money lazy in a bank at 0.01%. To read our post on lazy cash in HK, click HERE. But are i-Bonds really a great investment opportunity?

Chart 1: Inflation rate in Hong Kong 1981-2016


Source: Trading Economics | Census and Statistics Department, Hong Kong

Lending on Monexo has returned on average 12.5% to investors over the last year.
That’s significantly higher than i-bonds and much more attractive that leaving money in your saving account (losing 2.8% if you adjust for inflation).

To illustrate the difference between the 2 investment opportunities, if HKD 100,000 was lent on Monexo and every monthly repayment reinvested or re-lent, it would amount to a return of HKD 43,077 in 3 years, assuming an interest rate of 12%. i-Bonds, at the average inflation rate of 4.5%, would return HKD 14,416. One of the not so secret tools in this impressive difference in final capital is of course the benefits of monthly compounding on Monexo vs. semi-annual compounding of i-Bonds. Risk and return also go hand in hand. While iBonds have lower default risk, Monexo takes significant measures to minimize the risks for its lenders.

So, do i-Bonds still seem attractive to you? If not, leave the herd chasing them and come on board as a Monexo lender today!