I will do something slightly different this week. Instead of writing about recent insights I will tackle a few questions I have received from you readers.
I appreciate every single comment that I have received and I will answer all of them. You can also reply to this e-mail or ask me questions on Twitter’s direct messaging platform, accessible through my profile @Fritz844.
Question #1 – Fraud is rampant in the Chinese stock market, could you point to a few good corporates?
Yes. Fraud is rampant in China, especially among privately owned small caps. Look for those stocks that have repurchased shares at low levels and where insiders have been buying stock in the open market. A few such companies include Tencent (SEHK: 700 — US$764 billion), NetEase (NASDAQ: NTES — US$71 billion) and Sino Biopharm (SEHK: 1177 — US$20 billion). Look at the historical holdings of David Webb because he does deep research into the corporate governance of the stocks he owns. Almost all SOEs have powerful parent companies and recurring related party transactions. But at least SOEs won’t turn out to be total frauds. A few of the reasonably well-managed Hong Kong-listed SOEs that are inexpensive at the moment include the Chinese telcos China Mobile (SEHK:941 — US$137 billion), China Telecom (SEHK:728 — US$28 billion) & China Unicom (SEHK:762 — US$17 billion), Guangzhou Baiyunshan (SEHK:874 — US$7 billion), China Resources Pharma (SEHK:3320 — US$4 billion), PICC P&C (SEHK:2328 — US$18 billion), CICC (SEHK:3908 — US$28 billion) and CNOOC (SEHK:883 — US$47 billion). There are also a few Chinese ideas on the website of Asian Century Stocks.
Question #2 – What do you think about coal or other contrarian investments - are they reliable long-term holdings?
I assume you’re referring to Trader Ferg’s pitch on coal stocks. I think contrarian investing is how you make money over the long run. Buy companies with solid moats, low debt and an attractive multiple and you should be fine. In metals & mining, the only obvious moat that can exist is access to a low-cost resource. For commodities that are cheap to transport, bring up the global cost curve and make sure your stock is in the left part of that chart. For commodities such as coal or natural gas that are expensive or difficult to transport, make sure they have a competitive advantage for the customer base in their respective regions. Companies that enjoy access to unique resources including POSCO (KOSE:005490 — US$20 billion) (a deepwater port in Pohang) or Lynas (ASX:LYC — US$4 billion) (the only major rare earth miner outside of China). Such stocks are reliable long-term holdings, in my view. As long as you buy them at low levels.
Question #3 – How does one transfer money globally using cryptocurrencies?
Once you hold a cryptocurrency you can easily transfer it to anywhere else in the world. The issue is getting hold of that crypto. In China for example, the government banned crypto exchanges in early 2020. The government still allows individuals to transfer $50,000 to Hong Kong, which can then be used to purchase crypto currencies via Coinbase or other exchanges. But if that loophole goes away, Chinese will only be able to buy cryptocurrencies from other individuals. And since China has capital controls, you might have to pay a premium to the official XBTCNY exchange rate. Chinese can also buy mining rigs, which they then use to obtain crypto that they later sell overseas. The same is true for other individuals in countries that control capital outflows.
Asian stock ideas
Asian Century Stocks are out with a new report on Chinese telco China Unicom (SEHK:762 — US$17 billion)
A new outfit called DJY Research has published a report on Chinese video platform Bilibili (NASDAQ:BILI — US$36 billion)
Teddy Okuyama has started doing write-ups for Japanese small-cap software stocks: 1x per day in a 200-day challenge. So far, he’s written reports on GA Technologies (TSE:3491 — US$657 million), SRE Holdings (TSE:2980 — US$603 million), Nihon Jyoho Create (TSE:4054 — US$248 million) and Property Data Bank (TSE:4389 — US$99 million)
Effisimo Capital Management on corporate governance at Toshiba (TSE:6502 — US$16 billion)
Alexander Eliasson on Hong Kong-listed Singaporean Snack Empire (SEHK:1843 — US$33 million), which I had never heard of before his Substack post
Pangolin Asia Fund wrote in their February 2021 report about how Malaysian property companies trade at massive 80-90% discounts to NAV
China’s maritime militia has gathered a large number of “fishing boats” in Philippine waters and Manila has no idea what to do about it
GMO wrote a bullish report on Japanese stocks, calling Japan “an island of potential in a sea of expensive assets”
A contrarian take on inflation by Gary Shilling: “4 reasons Wall Street is wrong on inflation”
I really enjoyed this piece from The Economist on how the Chinese Communist Party is planning to deal with Hong Kong
Podcasts and videos
Great WSJ “The Journal” podcast on how Jack Ma ran afoul of the government
Insightful episode of The Market Huddle with Aidan Garrib on inflation, the commodity boom and China’s credit cycle. One interesting data point: the growth rate in PRC’s buying of copper seems to be slowing.
Oil trader Pierre Andurand was interviewed by Real Vision TV on his view of the market for carbon emission credits
The Brewin Dophin podcast on how India has recovered from the pandemic. Not sure how they missed the fact that the state of Maharashtra is experiencing a surge in cases
American journalist Te-Ping Chen speaks to Asian Review of Books about her book “Land of Big Numbers”
Chart of the week – The evolution of emerging markets 1900-2020
Source: Dimson, Marsh & Staunton (2020)
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