Insight #1 – The Chun Doo-Hwan precedent shows what could potentially happen after Xi Jinping
Author Joe Studwell once wrote a blog post comparing Chairman Xi Jinping with South Korean former president Chun Doo-Hwan. I came across the blog post the other day and found the comparison very compelling. Just like Xi, Chun was a populist who won the hearts of voters through an extensive anti-corruption campaign. And like Xi, he was politically backward-looking and unimaginative. Chun also did not permit any challenge to his rule. Similar to how the Chinese government dealt with protests in Hong Kong since 2019, Chun crushed dissent with repression and prison sentences. And while we tend to forget Korea’s authoritarian past, press was certainly not free back then. There’s even a parallel in how Chun made a bid for the Seoul Olympics in 1988, similar to Xi’s plan for a Winter Olympics in Beijing 2022. Even though Chun was a strongman and an authoritarian, he stepped down without fanfare in 1988. South Korea then successfully transitioned to democracy. That’s where the parallels end. Chun was a proponent of democracy. Xi on the other hand worships Mao Zedong and has abolished term rule, which could make him China’s leader until at least 2035.
Insight #2 – Asia’s IPO market in a historical perspective
It’s been an astonishing year for IPOs, with global IPO proceeds in the first quarter of 2021 of US$162 billion. US SPAC issuance have set records. Within mainland China, the amount raised in IPOs in 2020 reached about CNY 500 billion - very close to the level achieved during the “BRICs bubble” of 2010. If you include secondary issuance however, total capital raised in 2020 was actually still below the A-share bubble of 2015. But from what I’m observing, 2021 is shaping up to be a boom year in terms of new issuance. From a supply perspective, IPOs are bearish since they suck up money that could otherwise be used to buy existing shares. But it’s difficult to say how long the current boom will persist. In the Dotcom bubble, the IPO boom lasted for about 1.5 years.
Insight #3 – Assessing the prospects of Thailand’s potential tourism recovery
The Thai Baht performed the worst of any Asian emerging market currency in March. The issue is a lack of dollars from tourism and a resulting current-account deficit. The Bank of Thailand now expects a total of 3 million visitors in 2021 compared to 39 million in 2019. A currency analyst interviewed by Bloomberg said “We’re looking for a muted, bumpy recovery for the economy given the pandemic”. Such bearish sentiment spells opportunity to me. Thailand’s resort island Phuket just announced they will reopen to vaccinated visitors from 1 July. If the Phuket experiment proves successful, other destinations such as Chiang Mai, Koh Samui, Krabi, Pattaya, Phang Na, and Phuket will follow suit on 1 October. In 2022, Thailand plans to lift the quarantine requirement for all foreign visitors. Here in Singapore, the 45+ demographic are now getting vaccinated in great numbers. Many of them will be looking to travel. I think there’s a great deal of pent-up demand across the world. Once you allow people to travel - they will.
Asian stock ideas
Kerrisdale bought shares in Tencent Music Entertainment last Friday
Forager Funds are bullish on enterprise software stocks
This article from Nikkei discusses some of the fastest-growing companies in Asia. Companies in South Korea, Japan, Singapore and India are seen as particularly innovative. Chinese companies were for some reason excluded. The full list can be downloaded here.
Denver hedge fund Crescat Capital tends to lean bearish, but I find their case for precious metals compelling. Record budget deficits should lead to record inflation and if the 1910s and the 1970s are good precedents then we should also expect a relatively weak stock market.
This article from Wall Street Journal shows how inflationary pressures are starting to build in China.
Another great article from Lillian Li, this time on China’s cloud market.
This Substack post shows why “super-apps” are popular in emerging market: limited mobile phone storage and data plans increase the attractiveness on mini programs.
This bizarre speech by a CCP strategist shows the mindset of some of those who are in charge in Beijing: ”We need to put the US under our jurisdiction”.
This article from The Diplomat shows that China’s social credit system is still being developed as a key part of a 2025 plan to develop a “rule of law society”.
In a weird turn of events, Taiwan announced it is mass-producing long-range missiles. I am not sure whether that will deter a Communist invasion or actually accelerate it. Meanwhile, a US ambassador visited Taiwan for the first time in 42 years.
TSMC admitted that mainland customers have been building up significant inventory and that their recent chip demand might not be sustainable. On the other hand, they just announced a record capital expenditure plan of US$100 billion over the next three years.
Ominous: Every major market decline had blow-ups months before, similar to what happened with Archegos Capital.
Hong Kong set to allow corporate directors to obscure their identity. Someone doesn’t want to be identified. Will this precede a stealth take-over of companies in Hong Kong?
Bank of Japan said it will reduce the frequency of its bond-buying operations.
You can probably spend a week analysing the latest alt-data report from Astutex.ai. I bet you can find at least one or two ideas in there.
A handy resource from The Wire: Who’s Who in China MNCs.
Another bull market warning sign: retail traders open tip-trading bar in Tokyo.
Podcasts and videos
Richard Koo is a smart economist and in this episode he talks about the macroeconomic outlook for different countries in light of COVID-19, stimulus packages and record debt levels.
ChinaTalk talks to John Verwey of the Semi-Literate Substack on China’s dreams to develop chip manufacturing capabilities.
Soros CIO Dawn Fitzpatrick says half of the firm’s capital is now invested in private equity, expresses optimism about long/short equity and they are starting to dip their feet in the hospitality industry.
This YouTuber predicts Samsung Foundry will take market share from TSMC.
Chart of the week – Hedge funds are doing poorly this year
Source: Morgan Stanley
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