China Economic News

Just a normal boom bust housing cycle. Happens everywhere. Just slightly different as it is exacerbated by greed and sudden shifts in policies. Will work itself out eventually but no one knows exactly when.

Previously nearly everyone in China is hoping to acquire/have acquired 2 or more properties. Right now no one speaks of it as investment and making money but there is still genuine demand. Different tiered cities will have different pace of recovery.

The badly managed, most leveraged developers will struggle and avoid being bankrupt for some time to come. The best managed developers are acquiring prime land on the cheap and are doing fine. History tells us they will see rapid increase in earnings in the not too distant future. Gloom and doom is always the perfect time to purchase properties. Sg is probably nearer the peak, Cn probably closer to the bottom of the cycle.

Painful but inevitable restructure?

How Xi Jinping is taking control of China’s stock market

Where as Mao shut down China’s stock exchanges, Xi wants to use domestic equity markets to reduce dependence on property and infrastructure development to drive growth. But his “new whole-nation system” prioritises party policy above profit.

This helps explain why the party’s top cadres have been fast-tracking IPOs but remain reluctant to deploy large-scale property and infrastructure stimulus to reinvigorate economic growth. In their eyes, returning to the old playbook would only postpone an inevitable reckoning for debt-laden real estate developers and delay the planned transition to a new Chinese economy.

https://www.ft.com/content/f9c864c1-6cd4...b5e2ec6535

Been 1 of the worst polluters (and destroyer of the environment) since The Great Leap Forward, it is ironic that China's 3 new products are taking the lead to slow down mankind's self destruction.

Xi’s solution for China’s economy risks triggering new trade war

China’s leaders are pouring money into manufacturing as property-related activity, which once spurred about a fifth of the economy’s expansion, turned into a drag on growth in 2022. Part of that focus is what they call the “new three” growth drivers of electric vehicles (EVs), batteries and renewable energy, aiding the world’s de-carbonisation push and fuelling demand for commodities such as copper and lithium.

China’s clearest manufacturing success has been the “new three” products. The export value of electric cars, batteries and solar panels grew 42 per cent on-year in the first three quarters of 2023, according to official statistics. Domestic sales of those products are even larger than exports, fuelled by subsidies for solar installation and EV purchases. Local consumers bought nearly six million domestically made passenger EVs in the first 10 months of last year, compared to exports of 1.6 million.

Treasury Secretary Janet Yellen in November warned that oversupply “could arise in the future in industries that China is investing in very heavily”. Selective subsidies in Biden’s Inflation Reduction Act aim to price Chinese-made green technology out of the US market while a steady ratcheting up of restrictions on high-tech chip sales seek to slow China’s ascent.

https://www.businesstimes.com.sg/interna...-trade-war

It seemed like Mr Chua was probably trying to stop redemption in his fund with his "once-in-a-lifetime opportunity" talk at the end of 2023. It could be once-in-a-lifetime opportunity but unfortunately, not on his fund.

Singapore hedge fund Asia Genesis shuts after ‘big mistake’ on China trade

Chua Soon Hock’s Asia Genesis Macro Fund had a drawdown of 18.8 per cent in the first weeks of January, according to a letter sent to investors seen by Bloomberg News. The fund is returning money to investors after losses on long Hong Kong and China equities positions as well as short Nikkei bets, according to the letter.

“I have lost my knowledge, trading and psychological edge,” he said “The principle of risk-reward for both the short term and long term has turned its head.”

https://www.businesstimes.com.sg/compani...take-china

Singapore hedge fund says Hong Kong stocks are ‘once-in-a-lifetime’ chance for big upside after wildest two years since 2008
https://www.scmp.com/business/markets/ar...ildest-two

Since 2022, I have been hearing stories of how undervalued China is. I too do understand this, the companies are trading at low P/Es and a few have high dividend yield.

However, it is important to understand sentiments play a big part. 1 country, the companies can be valued at 20-30 P/E, while another country can be valued at 8-10 times P/E, due to the difference in sentiments. China is entirely unique where the communist government sits a top of the corporate structure, not the CEOs/Chairman.

I am moving to the notion that we should not subscribe to the P/E valuation model for China. This is because as shareholders we want returns, and as OPMI, this can only be achieved by dividends or a buyout offer. Buyout is rare in china and this leaves us with dividends. Share buyback is not a strong case for China because while you get a larger pie of the business, the fact that the communist government can amend policies to affect your EPS (example is Alibaba, Tencent, Oriental education being affected) shows the questionability of getting a large slice without any dividends.

A dividend model may be the best way to value China companies and for a start consider a 4% dividend as an hurdle rate. This is due to it being the risk free rate with a bit of premieum for China's Lending as well as Singapore's SORA

If the issue you described affects FCF, it would also affect dividends the same way it affects buybacks (both are funded by FCF).

My view is that dividends are better than buybacks because investors have the money to do what they want. Investors can either buy more shares or use for other purposes.

In a buyback, it is the company using the cash to buy back shares. That is a difference

https://www.businesstimes.com.sg/propert...nt-sources

In addition to the residential market, it seems China's commercial office space is weakening as well. We had seen how US office building fell 20-30% in valuation which triggered the mass selling of US REITs and commercial defaults. It seems China is staring at the same fate with Blackrock looking to sell off at 30% discount

It's the old adage of "the market can remain irrational longer than you can remain solvent". Reminds me of Julian Robertson declaration in early 2000 that he doesn't understand the markets / tech anymore...

Especially for hedge funds that has a short shelf life to prove performance. it is also the reason for institutional imperative of why long funds are index hugging... can be career destroying though one might be right in the long term . Contrary to common perception it is not that Fund Managers are dumber than value investors It's just different constraints...

China is extremely cheap but it has become a binary market based on policies rather than forecast-able economic realities.

(23-01-2024, 05:45 PM)weijian Wrote: It seemed like Mr Chua was probably trying to stop redemption in his fund with his "once-in-a-lifetime opportunity" talk at the end of 2023. It could be once-in-a-lifetime opportunity but unfortunately, not on his fund.

Singapore hedge fund Asia Genesis shuts after ‘big mistake’ on China trade

Chua Soon Hock’s Asia Genesis Macro Fund had a drawdown of 18.8 per cent in the first weeks of January, according to a letter sent to investors seen by Bloomberg News. The fund is returning money to investors after losses on long Hong Kong and China equities positions as well as short Nikkei bets, according to the letter.

“I have lost my knowledge, trading and psychological edge,” he said “The principle of risk-reward for both the short term and long term has turned its head.”

https://www.businesstimes.com.sg/compani...take-china

Singapore hedge fund says Hong Kong stocks are ‘once-in-a-lifetime’ chance for big upside after wildest two years since 2008
https://www.scmp.com/business/markets/ar...ildest-two

(23-01-2024, 05:45 PM)weijian Wrote: It seemed like Mr Chua was probably trying to stop redemption in his fund with his "once-in-a-lifetime opportunity" talk at the end of 2023. It could be once-in-a-lifetime opportunity but unfortunately, not on his fund.

Singapore hedge fund Asia Genesis shuts after ‘big mistake’ on China trade

Chua Soon Hock’s Asia Genesis Macro Fund had a drawdown of 18.8 per cent in the first weeks of January, according to a letter sent to investors seen by Bloomberg News. The fund is returning money to investors after losses on long Hong Kong and China equities positions as well as short Nikkei bets, according to the letter.

“I have lost my knowledge, trading and psychological edge,” he said “The principle of risk-reward for both the short term and long term has turned its head.”

https://www.businesstimes.com.sg/compani...take-china

Singapore hedge fund says Hong Kong stocks are ‘once-in-a-lifetime’ chance for big upside after wildest two years since 2008
https://www.scmp.com/business/markets/ar...ildest-two

I have made a mistake by interpreting "drawdown" been fund redemption, but it is actually losses. And have corrected accordingly because my posting has presented an incorrect impression.

Kudos to Mr Chua for realizing that he doesn't "know the market" anymore. Rather than throwing more good money at bad strategies, he knows when to stop. It is something that all of us can learn from. Often we tend to average down on cheapness, and as it got cheaper, more money is thrown at that since the basis was "cheap" in the first place. But when the markets re-rate, we have to acknowledge it is our mistake, rather than thinking "Mr Market doesn't appreciate it".

Singapore Hedge Fund closes after bad China trade – Read the letter from CIO to Investors

I have reached the stage whereby my confidence as a trader is lost. The recent tough trading – October, November, December 2023 followed by a disastrous January 2024-has proven that my past experience is no longer valid and instead, is working against me. I have lost my knowledge, trading and psychological edge. The principle of risk-reward for both the short-term and long-term has turned its head. We made big mistakes in the recent sharp Nikkei and Hong Kong moves which went in opposite directions. I underestimated the Nikkei’s straight-line upward movement and Nikkei ETFs being bought at a 20% premium over net value on China exchanges, and how long this will continue.

https://financialhorse.com/singapore-hed...investors/