Insight #1 – Macau casinos should recover from COVID-19 but are over-earning and face 2022 concession non-renewal risk

Macau gross gaming revenues recovered to just -70% YoY in 4Q20 vs -93% YoY in the prior quarter. So it looks like Macau casinos are on a steady recovery path. But the stocks themselves are already discounting a recovery - and more. Galaxy Entertainment is at an all-time high and Melco is back to pre-pandemic levels. I don’t think the long-term growth case is compelling either. In 2018 EBITDA per casino was about 2-4 times that of equivalent casinos in Las Vegas. It’s unclear why. Perhaps because of money laundering and evasion of China’s capital controls. Or the success of Macau’s casinos could simply be a result of China’s post-GFC credit boom and property bubble. But there is another reason to be skeptical about Macau casinos, and especially the American ones: their concessions expire on 26 June 2022. It’s possible that Macau’s government extends their concessions for another 5 years. They could also renew them at less attractive terms. Or potentially award these concessions to domestic Chinese companies instead. It’s a major risk I don’t think the market is fully taking into account, especially when it comes to MGM China, Wynn Macau and Sands China.

Insight #2 – Singapore is ahead in vaccinating its population and Japan & Korea are not far behind

Nikkei published a neat table showing the progress countries have achieved in terms of vaccinations per capita. In Asia, Singapore is in the lead with 6 vaccines per 100 individuals, followed by Mainland China, Sri Lanka and Bangladesh. Mainland China has given out 40 million shots so far, though it should be noted that Sinovac and Sinopharm vaccines have lower efficacy rates and the government is not letting elderly take its vaccines. Korea is planning to start vaccinating its population this week with 10 million vaccinations planned by July. Japan’s roll-out began last week and the government is still hoping for a completion of the program before Tokyo Olympics in July / August. Taiwan claims Beijing has used its influence to stop BioNTech from supplying the country with its vaccines, but apparently discussions are still ongoing. Thailand, Malaysia and Indonesia are all in the process of starting their vaccination processes, in some cases with forceful measures and relying mostly on Chinese vaccines. It looks like developed Asian countries will come out ahead in the vaccination race, whereas poorer countries such as Indonesia and India will have to rely more on achieving herd immunity.

Insight #3 – New policies are likely to be highly stimulative for the Indonesian property market

Indonesia just cut the withholding tax for foreigners from 20% to 10%. In other news, Bank Indonesia relaxed LTV regulation for mortgages, making it possible to borrow up to 100% for first and subsequent homes (previously 85-90% for second and subsequent homes). Another law could make it possible for foreigners to buy - or at least build - a house in Indonesia. And then of course, Bank Indonesia has cut the benchmark interest rate to 3.5% from 6.0% in 2019. Combined with commodity prices flying and the economy recovering from COVID-19, I believe the Indonesian property market will do very well in 2021. It’s a historically underpenetrated market with the number of housing units built per capita and year roughly 1/4 that of China. And modern commodity housing is very rare outside of major cities. The key beneficiaries of a recovering housing market include Pakuwon, Bumi Serpong, Ciputra and Summarecon. Just be aware that most of these developers are highly leveraged.

Asian stock ideas

• Asian Century Stocks on Ichigo Hotel REIT

• Value Pendulum claims Korea Electric Power will enjoy regulatory tailwinds

• Quick update on the Sogou arb idea from Pembridgecap

• Bonhoeffer’s 4Q20 letter mentions Korea’s GS Home Shopping

Weekend reads

• Michael Burry believes Weimar Reich-style hyperinflation is coming

• I really enjoyed this post from Akram’s Razor on how markets are likely to behave as the world recovers from COVID-19

• Worthwhile read from Bireme Capital on the growth vs value debate

• Exante Data: China's digital currency is a game changer Part II (for reference: Part I)

• Open Insights make the case that we are facing a near-term energy crisis

• Alternative data shows Japan leads the recovery from COVID-19 (h/t: Teddy Okuyama, whose Substack I wholeheartedly recommend)

• An article in The Economist suggest 80% of Japanese support cancelling the Olympics out of the fear of COVID-19

• A Japanese company successfully test drives a flying car for the first time

• A fun comparison between Chinese apps and their rest of world equivalents

• Another article from Katsuji Nakazawa believes the Chinese Communist Party’s praise for Hua Guofeng marks a departure from Deng Xiaoping’s opening-up reform

• South China Morning Post writing about China’s GDP “paradox”: why young Chinese despair about future prospects despite rapid economic growth

• A thought-provoking article exploring whether Xi Jinping’s China is closer to Hitler’s Germany or Stalin’s Soviet Union

• Mike Pompeo wrote an editorial in the Wall Street Journal making the case that SARS-Cov-2 came from the Wuhan Institute of Virology

• Biden is expected to sign an executive order that will build a China-free technology supply chain

• Caixin reports that China may ease controls on citizens’ offshore investments, though I remain highly skeptical since foreign exchange is considered a scarce resource for the Party

• Private equity firm run by Jiang Zemin’s grandson is moving from HK to Singapore, perhaps because the old man is losing his influence within the party

• The Economist on the potential for a Taiwan contingency

• Thailand reported that they will ease quarantine requirements for those who can prove they have been vaccinated against COVID-19. Taiwan will allow foreign visitors from March 2021 onwards.

• The story of how two former investment bankers created the ”Starbucks of toilets” out of their base in Thailand

• Singapore offers new tech visas for those earning more than SG$15,000 monthly

• Myanmar’s coup creates a minefield for business

• On Indonesia’s growing dependence on Chinese trade

Podcasts and videos

• Pangolin Aviation Recovery Fund’s Ibrahim Sani on the potential for an Asian travel recovery

• GaveKal’s Louis-Vincent Gave on the potential for a rise in inflation (16:00 onwards)

• Famed short-seller Anne Stevenson-Yang on US-China relations

Chart of the week – GMO thinks emerging market value stocks will be the only asset class that will provide positive return over the next 7 years

Source: Grantham, Mayo, Van Otterloo

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