Insight #1 – Hong Kong property prices will be negatively affected by emigration
A article from The Guardian suggested that at least 10% of Hong Kong’s population are considering emigrating to the United Kingdom. From the survey quoted in the article: “Ninety-six per cent consider Hong Kong no longer a safe and free home that they are used to living in.” This raises the question of what will happen to the property market, if a large part of the population leaves Hong Kong. There is a precedent here: in the run up to 1994, about 300,000 Hong Kongers moved to Canada (about 5% of the population). Property prices did not drop noticeably. However, during this period, the total population never actually decreased. Will it be different this time? In the early 90s you could get prime residential property at cap rates over 10%. Today you’d be lucky to get 2%. Hong Kong’s only real remaining edge is its currency, enabling China to raise foreign capital. Mainland Chinese have historically been attracted to Hong Kong, but now they have to pay mainland taxes on their local income and many of them say they don’t feel welcome anymore. I can’t think of a worse set-up: property prices are at levels last seen in late 1980s Japan, a large part of the population wants to emigrate and Hong Kong will probably lose its edge when it is finally integrated into mainland China.
Insight #2 – Korea’s tech mania has gone parabolic
Korean retail investors tend to get involved with any major speculative boom and bust. They were heavily involved in the Bitcoin bubble of 2017. They borrowed heavily in US Dollar in the run-up to the Asian Financial Crisis of 1997. They got involved in equity linked autocallables in 2019. And in 2020, their focus has turned to technology stocks. Korea Securities Depository just reported that over 1% of Tesla’s shares outstanding are now held by Korean retail investors. The trigger might have been the 75bps reduction in Bank of Korea’s benchmark rate. Since then, margin debt has simply ballooned. James Lee, a 30-year old office worker interviewed by Reuters said “It’s quite stupid not to ride this rally, you won’t need a single dollar to buy stocks if you can open an overdraft account”. Day-traders now represent over 80% of the value of stocks traded (see below chart). An index of the popular “Seven Princesses” (Samsung Biologics, Celltrion, LG Chem, Samsung SDI, Naver, Kakao and NCSoft) has doubled year-to-date. This retail mania could go on for a while. But an interesting angle from a short perspective is that the current short-selling ban will lapse on March 2021. Once the market turns, I think certain stocks could face significant downside, including the popular Samsung SDI, Celltrion and Samsung Biologics.
Insight #3 – Japan, Singapore & Hong Kong will be the hottest destinations for Chinese tourists
China Reality Research posted an excellent survey of Chinese tourists, asking them where they want to go after travel restrictions are eased. Japan was by far the most popular destination, followed by Singapore and then Hong Kong. The most important factor for them was safety from COVID-19. But Japan also wins in terms of low travel cost and access to visa. There is of course a risk that Chinese outbound tourism will stay low, given tourism’s drain on the country’s current account. But if outbound tourism does recover, Japan is certainly well placed to benefit. As I have mentioned before, what makes Japanese tourism stocks particularly attractive is the Tokyo Olympics, which is scheduled to take place in July / August 2021. Hospitality REITs such as Japan Hotel REIT and Invincible Corp will benefit, as will retailers such as J Front and BIC Camera as well as resort operators such as Oriental Land.
Asian stock ideas
Asian Century Stocks on Chinese wine producer Yantai Changyu
CXJ Research on PopMart, which grew its market cap 40x in 18 months
Articles worth reading
Q&A with Himalaya Capital’s Li Lu
Exante Data noting that flows into EM equities are surging
Variant Perception thinks there are many reasons to be optimistic about stocks
Valueinvestingblog.net sold most of its Japanese holdings
Some analysts expect PBOC to tighten monetary policy
China has started to institute “exit bans” on some of its citizens
Michael Dunne on the increasing bifurcation in China’s EV industry
Manhattan Contrarian on why no-one is criticizing China’s environmental policies
Reuters Investigates: China launches ‘gray-zone’ warfare to subdue Taiwan
WSJ: China’s Xi ramps up control of private sector (paywall)
FT: China curtails overseas lending in face of geopolitical backlash (paywall)
China’s new central bank currency saw its first transaction on 11 December
Nikkei: Toyota's game-changing solid-state battery en route for 2021 debut (paywall)
Indonesia setting up a sovereign wealth fund (paywall)
Nikkei: Indian-made COVID vaccines will save the world (paywall)
Singapore to open border to Taiwan on 18 December
Podcasts and videos
Interview with Steve Mandel (non-Asia related)
Recent interview with Charlie Munger (non-Asia related)
Bloomberg Odd Lots podcast: Why Africa Borrowed Billions from China
Interview with Dennis Hong at Shawspring Partners
Brewin Dolphin: Investing in China
Chart of the week – Korean day traders have entered the market in record numbers this year
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