Insight #1 – A COVID-19 vaccine is highly bullish for cyclical stocks across Asia
Pfizer’s announcement about its COVID-19 vaccine having a 95% efficacy is bullish for cyclical stocks across Asia. Energy, materials, banks, property, insurance, retail, machinery, auto sectors will all benefit. A risk-on environment might also attract portfolio flows back to riskier emerging markets such as Indonesia and the Philippines. The timeline for mass distribution is unclear. Up to three vaccines could potentially be available by January. But it would take many months - perhaps even a year - for the logistics industry to build out the capacity to transport billions of doses of a vaccine at ultra-cold temperatures. By then, the virus might have died out anyway. The cost of $20-40/shot vaccines might also be out of reach for some individuals in the poorer parts of Asia.
Insight #2 – China’s EV sector could represent the short of a lifetime
Retail speculation across Asia and the United States has driven up many stocks in the electric vehicle sector to unprecedented levels. NIO’s stock is up +10x YTD. Tesla’s stock is up +5x. And even though 2020 has been a tough year for the auto market, both Xpeng and Li Auto managed to secure US listings for their shares over the past few months. Neither of the Chinese EV companies have any type of “moat” to speak of. Xpeng has been accused of stealing autopilot source code from Tesla. NIO does not even own an auto plant but outsources production to a third party. Yet NIO has a market cap of US$64 billion, Xpeng US$32 billion and Li Auto US$30 billion. NIO regularly shows up in the top 3 most popular stocks on Fidelity’s platform. What makes them potentially worth shorting is that China will end their EV subsidies by 2022. When Hong Kong slashed their EV subsidies in 2017, EV sales went to almost zero. I think we could see a repeat of that experience on the Chinese mainland post-2022.
Insight #3 – Tokyo Olympics has been confirmed for July-August 2021
Jefferies reported that Japan’s prime minister Yoshihide Suga is determined to let the Tokyo Olympics go ahead on the re-scheduled dates of 23 July to 8 August 2021. Whether spectators will be allowed or not is still unclear. If a vaccine is available before the Tokyo Olympics, the games could attract tourists in great numbers back to Japan. Certain stocks in the hospitality, entertainment, retail and consumer goods industries have been hit hard by COVID-19. Suga’s determination for the games to go ahead as planned will make many of these stocks dual (COVID-19 re-opening) + (Tokyo Olympics) plays.
Asian stock ideas
Citron turns negative on Chinese EV developer NIO
David Herro on Naver & Naspers and other global stocks
The Value Pendulum on Singapore tech hardware company Razer
Fiduciary Management discussing Jardine Strategic
Articles worth reading
China tech focused fund manager’s Hayden Capital 3Q20 letter
The Generalist Substack: everything you wanted to know about QR codes
China has built 700,000 5G base stations in 2020, more than rest of the world combined
China’s promise: A free market for unfree people
Xi Jinping’s speech encouraging the development of an indigenous Chinese supply chain that the world must rely on in order to give the CCP leverage
China putting together a list of diehard supports of "Taiwan independence movement", warning them of life prison sentences
Crackdowns everywhere show Xi strengthening party grip on China
Bridgewater's Dalio supports Ant IPO suspension, bullish on China
Xi's message to Alibaba’s Jack Ma, 'You're nothing but a cloud'
WSJ: Tech war with US turbocharges China’s chip-development resolve
China to start big oil and gas project in South China Sea
1 million Chinese injected with Sinopharm vaccine under emergency use scheme
Indonesia central bank cuts rates to boost economy in recession
15 Asian nations sign RCEP, the world’s biggest free-trade deal in 8 years
Hong Kong is issuing new guidelines for the family office industry
Hong Kong ranked second-worst city in Asia for expats to live due to soaring costs and declining stability
Banks lose appetite for Hong Kong commercial real estate as work-from-home becomes permanent
Singapore introduces new type of work visa for technology sector talent
Podcasts and videos
China bull vs bear debate between Michael Pettis and Kyle Bass
Grant Williams interviewing Jim Rogers
Yukon Huang: “Debunking myths about China’s economy” (video)
On the Chinese EV bubble (from August 2020)
Chart of the week – China’s total debt/GDP has risen ~170 percentage points since 2008
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