1. That's an incredible statistic. I've been a bystander when it comes to China's pharmaceutical and biotech sectors for the simple reason that I don't feel I can assess a company's R&D capabilities and drug pipelines. It's exciting though to see the industry grow from almost nothing to globally competitive. Some stocks in the sector such as Sino Biopharm have come off quite a bit though so perhaps it is time to look at them again.
2. I actually wrote a post on Alibaba last summer but decided not to publish it. The reason was that while I could find red flags and question marks, nothing conclusive came out of the analysis. On the positive side, it's an astoundingly dominant business in a sector that's still growing. On the other hand, the accounting is complex. It's also tricky to judge how politics may impact the business given the well-documented enmity between Xi and Jack Ma. Does Jack Ma still control the business? At the current price of US$104/share, I am tempted but I lack conviction.
Will Alibaba be able to reinvent itself and build back investor sentiment given the multiple challenges it is facing? As you may know on the NYSE, $BABA has lost around 58% of its value in the last year. Are ADR de-listing fears and the hype behind "China being uninvestable" enough to keep driving down the stock? Any insights would be appreciated, thank you.
Hi Michael! I just realised that I had forgotten to reply to your message. Apologies!
To answer the easiest question first, I think that the delisting fears are totally overblown. Because Alibaba now has a Hong Kong listing which I presume will become the primary listing for the company. There's no evidence that NYSE-listed depositary receipts trade at higher multiples than those with their only listing in Hong Kong (e.g. Tencent). So I would definitely not worry about the risk of a delisting from American bourses.
The political issues with Alibaba are difficult to understand. And it's become even more difficult to predict the future of the company. What we know for sure is that Ant Group's payment service and financial ecosystem will lose share to state-backed competitors. It will also share credit score data with the government. The value in Taobao and Tmall seems to be intact. There's a feud between Xi Jinping and Jack Ma, with the latter being close to the faction around Jiang Zemin in the Communist Party. I'm not sure what that implies for Alibaba though, because he has already resigned from the company.
Alibaba's accounting has historically had issues with acquisitions of related parties, which could indicate round-tripping of cash. Assets on the balance sheets have also been overvalued in the past, indicating an attempt to maintain higher margins. But those are more red flags than evidence of any sort.
I personally think that Alibaba is one of those grey zone stocks, where there's not enough information about Xi Jinping's intention to draw any clear conclusion about its future. But the stock is down a lot, and I believe Xi's campaign against private sector opposition might be getting closer to an end now that Xi will secure a third-term at National Congress later this year. Sentiment is clearly weak. And the stock is close to its 2015 lows. That alone makes many investors bullish. I'm personally happy to stay on the sidelines though.
I'm not sure. From what I hear, much of Cambodia's tourism is driven by Chinese tourists. And much of the rest surely from Southern Vietnam. I'm seeing signs of borders across Southeast Asia opening up in almost every country, so yes - NagaCorp should definitely do better one year from now than today. But since Cambodia is so reliant on Chinese gamblers (my guess; the data may tell you otherwise), a full recovery will probably not be reached until the Chinese government drops its Zero-COVID policy. Let's see whether they shift their approach after National Congress in October / November.
Few other question, Michael. Can you share: (1) good defense idea within Asia; (2) best way to hedge against inflation; (3) which market in Asia you see most opportunities over the next 12m? Thanks!
1. I take it that you're referring to defense companies. The highest-quality defense company I've found in Asia is probably LIG Nex1 in Korea, producing ground-to-air missiles, which will be crucial in any conflict that might erupt in East Asia. Plus, missiles are consumables and production capacity can quickly be ramped up.
2. Between property and natural resources, I probably prefer the latter - be it energy stocks or food products. Oil & gas majors such as Inpex, CNOOC or PTTEP come to mind. Or palm oil stocks such as United Plantations or Wilmar. I don't know much about Indonesian coal stocks, but Banpu, Geo Energy and Adaro come to mind.
3. No clue as market movements are unpredictable in my view. But China's credit cycle seems to be turning and the private sector anti-corruption campaign might come to an end after Xi secures a third term at National Congress in October / November, so it would make sense to see a cyclical rebound in Chinese equities later this year. COVID-19 recovery stocks in Southeast Asia - especially Indonesia and Philippines - seem promising as well, given how Omicron-induced herd immunity has been achieved in many parts of the region.
That is such a good question. You're putting me on the spot now, with many thousands of companies to choose from.
What comes to mind are Naver, Bilibili, Tencent, ICTSI, Bloomberry Resorts, TSMC, Carabao, Multi Bintang, Haitian Flavouring, Kweichou Moutai, LG Household & Health, Hartalega, Yunnan Baiyao, Sampoerna, Unilever Indonesia, Airports of Thailand, Bumrungrad Hospital.
To pick 2-3 I think LG Household & Health is up there, as is ICTSI as well as TSMC. The reason is that they are run by extremely capable individuals (Suk Cha, Enrique Razon and Morris Chang) who do what's best for minority shareholders. I suppose Morris Chang has retired now, but I think the organisation is still run in the best interests of minorities.
I'm probably the wrong person to ask as I don't pay attention to IPOs. I like to look for cheap stocks 1-2 years after an IPO after they've disappointed their new investors are fallen to new lows.
In terms of GoTo, it seems to me that virtually all its ride hailing peers are losing money (Uber, Grab, Lyft). So what margin can we assume that they'll make? Hard to tell. I know from my own experience that I'm quite price sensitive. I'll switch between Grab, Comfort and Gojek based on whichever service is cheaper. So perhaps these services don't have the pricing power and margin potential that many investors assume.
Generally speaking, I don't really see the point with S-REITs. They trade around 4.0% dividend yield today with not much organic growth potential.
Today, you can buy Pakuwon Jati at >10% earnings yield and significant long-term growth potential. Granted, you won't get the tax benefits. But it still feels like the main beneficiaries of REITs are the sponsors, while REIT unit-holders end up with 4% dividend yield at a few percent nominal growth at best.
In the current post-COVID recovery environment, I think rents will do okay:
• Workers will return to offices
• E-commerce growth will temporarily decelerate as shoppers return to physical stores, helping retail rents recover
• Inbound tourism will come back, helping hotel occupancy rates recover
And Singapore had a significant budget deficit during 2020-2021, causing the M2 money supply growth +17%. I think that money sloshing around is starting to show up in condo rents, and in the future also retail and office rents. So not only should many commercial REITs recover - they should probably trade above their pre-pandemic highs.
Singapore-listed Logistics REITs could be a way to bet on companies diversifying their supply chains out of China into Southeast Asia. I haven't spent much time on this theme yet.
Rates hikes are probably a net negative. But tricky to say what's priced-in and not.
My gut feeling is to look for hospitality > office > retail. But say Ichigo Hotel REIT is likely to provide a 10% dividend yield post-pandemic, and that's a pretty high bar. I don't think there's the same type of value among S-REITs.
Hi Michael ,long time fan and a subscriber. I have a few question
1) Any views on SG property counters ?
2) Share an experience of a multibagger and lessons learnt (best trading experience)
3) Share an experience of a worst investment and lessons learnt (worst trading experience)
4) Any endgame for CNOOC or should this be a long hold ?
5) Seems like more people taking public transport these days (SBS Transit), how does anecdotal observations filter in your investment decisions , or is it too simplistic ?
1. I wrote about a few of SG property stocks them in this write-up. The stock that stood out to me was Bukit Sembawang with its massive landbank. Frasers Property looks cheap as well but I don't know whether it's corporate governance is okay. https://www.asiancenturystocks.com/p/sgproperty?s=w
2. Oh, the best experience was buying Italian HVAC contractor and manufacturer Delclima following its spin-off in 2012. The stock went up 10x up until its acquisition by Mitsubishi Heavy. I didn't hold the stock all the way up but I still made a lot of money on it. The lesson there was to look for special situations (spin-offs, post-reorgs, merger securities, leveraged recaps, and the like). It's much more difficult to gain an edge in normal, highly liquid stocks.
3. Back in late 2008, I took all my bonus money (I was working in the City in London at the time) and invested them all in Hong Kong small-cap net-nets. Literally within 2 weeks of putting the money to work, I had one company go bankrupt on me with a not insignificant sum of money wiped out. The company was called Norstar Founders Group and their revenue was completely fabricated. The portfolio turned out okay, but it was a nerve-wrecking experience and the quality of the stocks in the portfolio was garbage. I swore never to invest in such low-quality companies again.
4. No, it's not a long-term hold. I'm just waiting for the share price to reach more reasonable levels. Perhaps a 20% geopolitical discount is warranted. But I'm looking to sell at some point. Maybe at HK$20/share? I'll most likely reinvest the money outside of China, perhaps in Japanese activist ideas.
5. Oh, here on the Northeast Line the MRT trains are packed every single day. I track the the ridership through Apple and Google analytics and also LTA statistics. I'm absolutely convinced that ridership will recover - it's only a matter of time. Right now, anecdotally, I'm not necessarily seeing higher MRT ridership, but the most obvious change vs previous months is that Singapore hotel prices are going up. So that's my focus right now.
Thanks for doing this!
1. Do you happen to have a take on China biopharma and in seeking opportunities here? I came a startling statistic about the market value of publicly listed biopharma innovation players from China going from $3 billion in 2016 to more than $380 billion in July 2021. https://www.mckinsey.com/industries/life-sciences/our-insights/the-dawn-of-china-biopharma-innovation
2. Any views on Alibaba especially with respect to regulatory news?
Hi Christina!
1. That's an incredible statistic. I've been a bystander when it comes to China's pharmaceutical and biotech sectors for the simple reason that I don't feel I can assess a company's R&D capabilities and drug pipelines. It's exciting though to see the industry grow from almost nothing to globally competitive. Some stocks in the sector such as Sino Biopharm have come off quite a bit though so perhaps it is time to look at them again.
2. I actually wrote a post on Alibaba last summer but decided not to publish it. The reason was that while I could find red flags and question marks, nothing conclusive came out of the analysis. On the positive side, it's an astoundingly dominant business in a sector that's still growing. On the other hand, the accounting is complex. It's also tricky to judge how politics may impact the business given the well-documented enmity between Xi and Jack Ma. Does Jack Ma still control the business? At the current price of US$104/share, I am tempted but I lack conviction.
Thanks for sharing your thoughts, much appreciated :)
Will the AMA be held on reddit?
I never thought about that. Perhaps not this time but in the future perhaps. Thanks for the idea
Cool, will keep in mind - but how do I get in the upcoming AMA as a free subscriber? (is it zoom?)
Oh I'm so sorry - THIS is the AMA. Feel free to ask any questions in the comment section here.
Will Alibaba be able to reinvent itself and build back investor sentiment given the multiple challenges it is facing? As you may know on the NYSE, $BABA has lost around 58% of its value in the last year. Are ADR de-listing fears and the hype behind "China being uninvestable" enough to keep driving down the stock? Any insights would be appreciated, thank you.
Hi Michael! I just realised that I had forgotten to reply to your message. Apologies!
To answer the easiest question first, I think that the delisting fears are totally overblown. Because Alibaba now has a Hong Kong listing which I presume will become the primary listing for the company. There's no evidence that NYSE-listed depositary receipts trade at higher multiples than those with their only listing in Hong Kong (e.g. Tencent). So I would definitely not worry about the risk of a delisting from American bourses.
The political issues with Alibaba are difficult to understand. And it's become even more difficult to predict the future of the company. What we know for sure is that Ant Group's payment service and financial ecosystem will lose share to state-backed competitors. It will also share credit score data with the government. The value in Taobao and Tmall seems to be intact. There's a feud between Xi Jinping and Jack Ma, with the latter being close to the faction around Jiang Zemin in the Communist Party. I'm not sure what that implies for Alibaba though, because he has already resigned from the company.
Alibaba's accounting has historically had issues with acquisitions of related parties, which could indicate round-tripping of cash. Assets on the balance sheets have also been overvalued in the past, indicating an attempt to maintain higher margins. But those are more red flags than evidence of any sort.
I personally think that Alibaba is one of those grey zone stocks, where there's not enough information about Xi Jinping's intention to draw any clear conclusion about its future. But the stock is down a lot, and I believe Xi's campaign against private sector opposition might be getting closer to an end now that Xi will secure a third-term at National Congress later this year. Sentiment is clearly weak. And the stock is close to its 2015 lows. That alone makes many investors bullish. I'm personally happy to stay on the sidelines though.
Where can we find ownership data for Hong Kong and Chinese listed equities? Are these public disclosures?
Well in Hong Kong I think all >5% stakes have to be reported to the stock exchange. I think the rules in Shanghai and Shenzhen are similar https://www.aosphere.com/aos/shareholding-disclosure-china-summary
Regulated mutual funds will also disclose their holdings publicly.
How is tourism developing in cambodia?
Is this good time to invest in naga
I'm not sure. From what I hear, much of Cambodia's tourism is driven by Chinese tourists. And much of the rest surely from Southern Vietnam. I'm seeing signs of borders across Southeast Asia opening up in almost every country, so yes - NagaCorp should definitely do better one year from now than today. But since Cambodia is so reliant on Chinese gamblers (my guess; the data may tell you otherwise), a full recovery will probably not be reached until the Chinese government drops its Zero-COVID policy. Let's see whether they shift their approach after National Congress in October / November.
Few other question, Michael. Can you share: (1) good defense idea within Asia; (2) best way to hedge against inflation; (3) which market in Asia you see most opportunities over the next 12m? Thanks!
1. I take it that you're referring to defense companies. The highest-quality defense company I've found in Asia is probably LIG Nex1 in Korea, producing ground-to-air missiles, which will be crucial in any conflict that might erupt in East Asia. Plus, missiles are consumables and production capacity can quickly be ramped up.
2. Between property and natural resources, I probably prefer the latter - be it energy stocks or food products. Oil & gas majors such as Inpex, CNOOC or PTTEP come to mind. Or palm oil stocks such as United Plantations or Wilmar. I don't know much about Indonesian coal stocks, but Banpu, Geo Energy and Adaro come to mind.
3. No clue as market movements are unpredictable in my view. But China's credit cycle seems to be turning and the private sector anti-corruption campaign might come to an end after Xi secures a third term at National Congress in October / November, so it would make sense to see a cyclical rebound in Chinese equities later this year. COVID-19 recovery stocks in Southeast Asia - especially Indonesia and Philippines - seem promising as well, given how Omicron-induced herd immunity has been achieved in many parts of the region.
Putting valuation aside, what do you consider to the the 2-3 best listed companies in Asia and why?
That is such a good question. You're putting me on the spot now, with many thousands of companies to choose from.
What comes to mind are Naver, Bilibili, Tencent, ICTSI, Bloomberry Resorts, TSMC, Carabao, Multi Bintang, Haitian Flavouring, Kweichou Moutai, LG Household & Health, Hartalega, Yunnan Baiyao, Sampoerna, Unilever Indonesia, Airports of Thailand, Bumrungrad Hospital.
To pick 2-3 I think LG Household & Health is up there, as is ICTSI as well as TSMC. The reason is that they are run by extremely capable individuals (Suk Cha, Enrique Razon and Morris Chang) who do what's best for minority shareholders. I suppose Morris Chang has retired now, but I think the organisation is still run in the best interests of minorities.
Hi Michael, what are your thoughts on GoTo's (IDX) plans to go public? Is there much upside for retail investors?
I'm probably the wrong person to ask as I don't pay attention to IPOs. I like to look for cheap stocks 1-2 years after an IPO after they've disappointed their new investors are fallen to new lows.
In terms of GoTo, it seems to me that virtually all its ride hailing peers are losing money (Uber, Grab, Lyft). So what margin can we assume that they'll make? Hard to tell. I know from my own experience that I'm quite price sensitive. I'll switch between Grab, Comfort and Gojek based on whichever service is cheaper. So perhaps these services don't have the pricing power and margin potential that many investors assume.
Hi Michael - how do you think Singapore Reit will perform over next 12m with hiking rate environment?
Generally speaking, I don't really see the point with S-REITs. They trade around 4.0% dividend yield today with not much organic growth potential.
Today, you can buy Pakuwon Jati at >10% earnings yield and significant long-term growth potential. Granted, you won't get the tax benefits. But it still feels like the main beneficiaries of REITs are the sponsors, while REIT unit-holders end up with 4% dividend yield at a few percent nominal growth at best.
In the current post-COVID recovery environment, I think rents will do okay:
• Workers will return to offices
• E-commerce growth will temporarily decelerate as shoppers return to physical stores, helping retail rents recover
• Inbound tourism will come back, helping hotel occupancy rates recover
And Singapore had a significant budget deficit during 2020-2021, causing the M2 money supply growth +17%. I think that money sloshing around is starting to show up in condo rents, and in the future also retail and office rents. So not only should many commercial REITs recover - they should probably trade above their pre-pandemic highs.
Singapore-listed Logistics REITs could be a way to bet on companies diversifying their supply chains out of China into Southeast Asia. I haven't spent much time on this theme yet.
Rates hikes are probably a net negative. But tricky to say what's priced-in and not.
My gut feeling is to look for hospitality > office > retail. But say Ichigo Hotel REIT is likely to provide a 10% dividend yield post-pandemic, and that's a pretty high bar. I don't think there's the same type of value among S-REITs.
Hi Michael ,long time fan and a subscriber. I have a few question
1) Any views on SG property counters ?
2) Share an experience of a multibagger and lessons learnt (best trading experience)
3) Share an experience of a worst investment and lessons learnt (worst trading experience)
4) Any endgame for CNOOC or should this be a long hold ?
5) Seems like more people taking public transport these days (SBS Transit), how does anecdotal observations filter in your investment decisions , or is it too simplistic ?
Hi Alan!
1. I wrote about a few of SG property stocks them in this write-up. The stock that stood out to me was Bukit Sembawang with its massive landbank. Frasers Property looks cheap as well but I don't know whether it's corporate governance is okay. https://www.asiancenturystocks.com/p/sgproperty?s=w
2. Oh, the best experience was buying Italian HVAC contractor and manufacturer Delclima following its spin-off in 2012. The stock went up 10x up until its acquisition by Mitsubishi Heavy. I didn't hold the stock all the way up but I still made a lot of money on it. The lesson there was to look for special situations (spin-offs, post-reorgs, merger securities, leveraged recaps, and the like). It's much more difficult to gain an edge in normal, highly liquid stocks.
3. Back in late 2008, I took all my bonus money (I was working in the City in London at the time) and invested them all in Hong Kong small-cap net-nets. Literally within 2 weeks of putting the money to work, I had one company go bankrupt on me with a not insignificant sum of money wiped out. The company was called Norstar Founders Group and their revenue was completely fabricated. The portfolio turned out okay, but it was a nerve-wrecking experience and the quality of the stocks in the portfolio was garbage. I swore never to invest in such low-quality companies again.
4. No, it's not a long-term hold. I'm just waiting for the share price to reach more reasonable levels. Perhaps a 20% geopolitical discount is warranted. But I'm looking to sell at some point. Maybe at HK$20/share? I'll most likely reinvest the money outside of China, perhaps in Japanese activist ideas.
5. Oh, here on the Northeast Line the MRT trains are packed every single day. I track the the ridership through Apple and Google analytics and also LTA statistics. I'm absolutely convinced that ridership will recover - it's only a matter of time. Right now, anecdotally, I'm not necessarily seeing higher MRT ridership, but the most obvious change vs previous months is that Singapore hotel prices are going up. So that's my focus right now.