Author: admin

It seems that China’s housing market is trying to find bottom

In Oct, monthly property sales was ~800bn rmb, down 1% yoy.

In terms of sqm sold, that was ~76.5mn sqm, down 2% yoy.

If looking at residential property only, those two comparisons were at +1% and -1% yoy.

Year to date comparison would still look bad – residential property sales is down 22% (Jan – Oct) in rmb, and down 16% (Jan – Oct) in sqm.

End of Sep policy support and stock market rally helped the property market.

However, more recently, it seems that the frenzy has faded.

Despite that Oct yoy comparison looks flattish, don’t forget that when comparing with 2021 (Jan-Oct), property sales has dropped 50% in rmb terms!

Human beings are depreciating assets

One thing we can avoid is that we age.

Just like assets have depreciation life cycle – e.g. computers are 5 years, we human beings are depreciating as time goes by.

If a person can only do a thing at age of 50 similar to what he or she can do at age of 30,  the “depreciation” would be of significance.

However, one thing is different – we can improve on ourselves.

Buffett’s knowledge and investment skills is probably improving over the years. Thus the “carrying value” is probably increasing for a very long period of time for Buffett, even though depreciation also grows.

Other occupations like lawyers and doctors seem to be benefiting from “aging”.

Sometimes, there are external shocks that we can’t prepare on our own, especially if we continue on a repetitive daily life.

We need to actively access our carrying value from time to time, and be an honest “auditor” for ourselves. Then, we need to come up with plans as a “manager” for ourselves.

[Reading Buffett] 1977

Plan to read through Buffett’s annual letters.

Taking notes

Buffett commented on businesses / industry.

He was in textile. Looking backward, it’s a hard industry that should avoid. Buffett defended that they got excellent management team and were a large employer while employees were accommodating (flexible pay?).

He wrote a lot on insurance, which seems growing extremely well.

He invested in banking (Illinois National Bank). Buffett spoke highly of the person / manager and the track record.

Buffett also wrote on investment philosophy.

He likes ROE. His rationale is that growth in EPS could be partially due to growth in equity.

He also talks about long-term holding vs. short-term gains. But he may as well sound a bit like bragging as he also got short-term gains.

He likes very good managers, so he focuses on “managerial economic performance”, which is better reflected in ROE.

His experience was that buying shares is cheaper than taking private of a business. And he could keep the existing managers on board. In fact, “we can obtain a better management result through non-control than control”, which I think is crucial to Buffett’s long-term success.

A digression – insurance businesses’ success relies on good managers, which also makes sense.

 

One thing US is envying.. inflation

China Oct CPI is out, core CPI excl. food and energy, there was 0% increase month over month, and only 0.2% increase year over year.

Almost all kinds of food price dropped MoM, with pork dipping 3.7% MoM (+14.2% yoy).

Including food and energy, Oct CPI dropped 0.3% MoM and increased 0.3% YoY.

In Sep, the core CPI YoY increase was at 0.1% while MoM is -0.1%.

 

Thoughts?

a) Powell would love US CPI / PCE look more like China’s… not exactly the same, otherwise that might indicate a problem with demand..

b) The end of Sep & early Oct China’s stock market rally didn’t move the needle / has limited impact so dar. Day to day consumption still looks weak.

c) Rental price dropping 0.1% MoM and 0.3% YoY.

 

If RMB depreciates

One thing that might happen after additional US tariff is a weaker RMB, which can make Chinese export more appealing.

This may diver export from US to other counties, which gives pressure to producers globally.

What to do if you have rmb?

– buy houses in China

especially given that rmb borrowing rate is low, and housing prices have declined for 3 years, if you have confidence in chinese macro, buying a property in good locations is not a bad choice.

– buy overseas companies that are making money overseas

then the earnings power is not priced in rmb, and the value of the company should be rather uncorrelated to rmb.

 

Xiaomi’s strength

Besides Xiaomi’s scale, supply chain capability, IoT strategy, etc., I think the most underestimated strength comes from its competitors.

For all those merchants or companies who are “bullying” consumers, they will find themselves outcompeted by Xiaomi’s products – simply better, cheaper.

Xiaomi is not copying. Xiaomi doesn’t enter a new category if it thinks the product is good enough. Xiaomi usually executes with better efficiency, offers more value, or adds some differentiation.

Another noticeable change for Xiaomi in recent years is its brand value. It used to be more associated with low to mid income consumers as its products offer value.

However, as its car business picking up, people find its brand attractiveness quickly expand into the premium segment. Those who won’t buy Xiaomi phone can buy SU7 or SU7 Ultra etc. – this greatly expanding Xiaomi’s consumer base.

It’s like Walmart + Sam’s Club in terms of capturing more consumers.

Xiaomi could be China’s Tesla.

After Trump was elected

High-level things that people/market celebrates:

1/ more M&A in the US

2/ certainty in taxes: Harris proposed raising corporate income tax, stock buyback tax, unrealized capital gains tax

3/ near-term possibility of ending wars globally

 

Rates / Treasury yields

bad for long-term bondholders – higher inflation, higher deficits (more supply). but long-term treasury can’t rise too much – it can hurt US domestic mfg etc. if rates are high.

Trump would want Fed to cut rates. Even if Fed cuts, long-term bond yield could be hard to come down.

Thus, we should see a steepened yield curve, which is good for banks! Banks are borrowing current (cheaper cost) and lending long-term (higher yield).

 

China

1/ less probability of near-term war on TW strait (less idealogical driven; deal maker)

2/ higher tariff, less export – China needs to rely more on domestic consumption

 

Industries

1/ obviously, IRA could be changed. Then bad for renewables like solar, etc. It’s such an interesting industry.. no real demand if no IRA?

2/ crypto obviously, can boom especially if a new pro-crypto SEC chair comes in power

 

Is China placing bets on both sides of the US president race?

Just a random thought..

 

It was a bit obvious that it Musk, a big support for Trump, has a fairly big exposure to China via Tesla. Earlier this year, Elon Musk was meeting with the top leaders from China, and even his mother is doing commercial ads (brand ambassador) in China

On the other side, you are seeing more recently that China and India is reached some sort of peace agreement on the border. It’s really surprising to me, considering how sensitive China is on border issues. If you notice that Kamala Harris partially shares an Indian heritage, then it’s sort of like a support for Kamala Harris as well.

Again just random thoughts.

[Edit: Oh Usha Vance (JD Vance’s wife) also shares Indian heritage.