Insight #1 – Rezoning of land in Hong Kong could lead to a construction boom and more affordable housing
An open secret about Hong Kong’s housing market is that population density is actually low outside of certain parts of Kowloon and Hong Kong Island. The government owns all land but has only zoned 7% of it for housing, compared to 40% for parks and nature reserves. The same numbers in Singapore are 14% for housing and 16% for parks and reserves. It now looks increasingly likely that the government will act by pushing new regulation that will increase land supply available for construction. Parks, nature reserve or farmland could be rezoned into land available for housing. Clever developers such as Henderson Land are already ahead of the curve, having purchased large swaths of farmland in Kowloon and Northern Territories that could one day be rezoned. Once the process gets going, it could lead to a multi-year boom in housing construction. Whether the large developers will benefit, I’m not sure.
Insight #2 – Several of Korea’s new fintech start-ups enjoy network effects, making them forces to be reckoned with
Korean fintech company Toss is planning to start an Internet-only bank in July 2021, making it the third digital bank in Korea. What’s interesting about Toss is that it already has over 7 million monthly active users - more than 10% of South Korea’s population. They are using the app for loan product enquiries, insurance registration, peer-to-peer lending, brokerage services, etc. Just like with Kakao Bank and Naver’s banking JV with Mirae, it appears to me that Toss enjoys unique network effects that will give it strong bargaining power against the traditional banks. While the Korean banks have always been used to achieve the government’s industrial policy goals, it looks like they are becoming even more commoditised and even less profitable. Fintech start-ups sit on the customer and enjoy access to valuable customer data. And the new Internet-only banks Kakao Bank, K Bank and Toss will gradually steal deposits from the incumbents.
Insight #3 – Shifting demographics suggest the end of the 40-year bond bull market
Goodhart and Pradan's new book The Great Demographic Reversal argue that falling bond yields over the past 40 years were primarily driven by demographics. The entry of former Soviet Union states and China into the world economy, baby boomers joining the work force, higher female participation, the gig economy and the decline in trade union membership all led to a shift in bargaining power from labour to capital. But most of these trends have now started to reverse. China is turning inwards again and its working-age population has started to decrease. The world is aging and baby boomers will soon retire. And lastly, COVID-19 has made the world comfortable with very large budget deficits. The move towards higher inflation and higher rates is likely to have a negative impact on corporate profit margins and long-duration assets such as government bonds.
Asian stock ideas
The Asymmetric Skew Substack on Nintendo
A deep-dive into the $310bn market cap local services platform Meituan (audio)
An article in Nikkei Asia about Southeast Asian e-commerce company Sea Ltd
Teddy Okuyama on Japanese software company Raksul
At today’s meeting between China and the US, the Chinese delegation is likely to ask the Biden administration to roll back many of Trump’s executive orders. It’s possible that some type of deal will be reached - perhaps a climate agreement in return for rolling back US sanctions on PLA-linked companies.
Some good data on the US IPO market in this article in Barron’s. I keep being amazed at the amounts raised by individual companies in Hong Kong and China. We must be fairly close to a cyclical peak for the global IPO market.
Ray Dalio believes in a long-term bear market for bonds and “shocking” tax increases. I don’t disagree, though I would caution that US 10-year yields are already back to pre-pandemic levels while the Fed Funds rate is 150bps lower.
Japan is now allowing its coast guard to fire live bullets, greatly increasing the risk of a skirmish around the Senkaku islands. Another article from World Politics Review discusses the potential for Taiwan-controlled Dongsha islands (Pratas) to become the “next Crimea”.
A US professor focusing on climate change makes the case for a fossil-free future. I think he is naive. The death of coal in the US happened because of lower natural gas prices - not because of environmental concerns. We’re adding almost 60 million ICEs each year vs 2 million BEVs and passenger vehicles are only a small part of total oil demand.
Podcasts and videos
Dominic Scriven of Dragon Capital on investing in Vietnam
Board room veteran Gerhard Fasol on the corporate governance of Japanese companies
Michael Pettis on Chinese macroeconomic imbalances
Mike Pompeo on the foreign policy achievements made under Trump
Economist Radio on Baidu
On the misallocation of capital in Hongxin semiconductor
Mark Stokes discussing the PLA Rocket Force
Chart of the week – Average US-China tariffs remain elevated
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