Asia links 14 Jan 2021: US Framework for the Indo-Pacific, Chinese property bubble, oil price vs oil stocks
Insight #1 – The US State Department’s 2018 US Framework for the Indo-Pacific states it wants to accelerate India’s rise
The just-declassified 2018 US Framework for the Indo-Pacific outlines the US approach under Trump on how to deal with an expansionist China. It predicts that Communist China will take increasingly assertive steps to compel “unification” with Taiwan. It wants to enable Taiwan to develop an effective asymmetric defense strategy. It outlines stronger cooperation with India, Korea, Japan and Australia. The most interesting part of the document is that the US wants to “accelerate India’s rise”, including helping the country with its domestic economic reforms. Lastly, the US states that it wants to invest in capabilities that promote uncensored communication between Chinese people. Smart commentary on the document here and here.
Insight #2 – The restrictions on Chinese property lending are halting the rise, not popping the bubble
The new Chinese credit cycle is now 12 months old and is likely to continue until the 100-year anniversary of the CCP in mid-2021. The shadow banking sector has been booming throughout 2020, leading a boom in the Chinese property market. December pre-sales numbers for the major developers were fantastic. As CXJ Research reported, prices of many existing projects went up 20% or more in the last few months of 2020. It’s with this backdrop that we should view the PBOC’s recent curbs on property-related lending. The PBOC has set caps of 31/25% on banks’ exposure to total property loans / mortgages. These numbers can be compared to sector-wide blended averages of 29/20%. In addition, the banks will have 2-4 years to comply. That means that the type of runaway growth in mortgage lending as we saw in 2016 is unlikely to recur. But with the Chinese property market hotter than ever, I don’t think we should expect the bubble to pop just yet.
Insight #3 – Brent is already back to $55/barrel, yet many oil stocks remain far below pre-pandemic levels
Saudi Arabia’s surprise 1mbpd output cut in early January led to a strong recovery in oil prices. We’re almost back to a $60 Brent oil price. Spot prices may have run ahead of fundamentals, as argued by oil specialists HFI Research. But pent-up demand for travel might ultimately lead to oil demand exceeding 2019 levels, as some hedge funds are betting on. So I’m still amazed at how undervalued some oil producers and oil services stocks still are. It would require a +48% rise in the OIH to reach 1 January 2020 levels. It would require a +43% rise in the XLE to reach 1 January 2020. It’s probably not too late to invest. Just be prepared that a full recovery might take 12 months or even longer.
Asian stock ideas
Asian Century Stocks on Dairy Farm International
Searching 4 Value blog on Japanese karaoke operator Koshidaka
Not Boring Substack on Alibaba
Redditor on Hong Kong microcap Yorkey Optical
Profit Hunting blog on Chinese MSG producer Fufeng
J Capital short case for Chinese bitcoin mining company Bit Digital
Articles worth reading
JP Morgan’s Guide to the Markets 1Q21
Jason Geopfert: Investors were optimistic, now euphoric
Katsuji Nakazawa making the case that Xi Jinping’s trip to Yunnan in mid-January worsened the COVID-19 pandemic
Chinese officials further delete Wuhan lab Coronavirus studies, including all those produced by Shi Zhengli
Trump’s 2018 strategic framework for the Indo-Pacific now declassified
Chinese public sentiment on Jack Ma has shifted, reason unknown
Chinese ADRs seeking secondary listings in HK: TME, Vipshop, Joyy, Baidu
Blackrock plans to keep selling its shares in Chinese telcos
Carson Block’s Muddy Waters had a great year in 2020
Michael Dunne with six 2021 predictions for the Chinese EV market
Chinese electricity shortages is leading to online criticism
Investors have a new default worry in China’s debt market
HSBC grooms top bankers for make-or-break push into China
China removes restrictions on credit card interest rates
China is considering building an Internet firewall in HK prior to elections
Intel mulls outsourcing production to TSMC (and maybe Samsung)
WSJ op-ed on how Biden will have to coordinate a military buildup to avoid a Taiwan invasion
Strange Bloomberg headline: U.S. Unveils Plan to Counter China’s Rise
US lifts self-imposed restrictions on the US-Taiwan relationship
Xi Jinping's China and Hitler's Germany: Growing parallels
Infosys raises outlook as COVID-era digital shift quickens
Malaysia leader accused of power grab After Parliament Suspended
New Zealand abandons Five Eyes, pivots towards China
East Asia Forum: No simple solution to China’s dominance in Cambodia
Podcasts and videos
BCA thinks Chinese stocks will underperform in 2021
Kyle Bass interviewing Stephen Clapham on the dubious accounting of US-listed Chinese Internet stocks
Paul Gillis & Herb Greenberg on Alibaba
Anne Stevenson-Yang discussing J Capital’s Bit Digital report
Chart of the week – Hong Kong outward migration since 1 July 2020 amounts to 130,723 or 1.74% of the population
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