Blog – Page 10 – shiqiv.com

Things are moving fast… within China’s financial system

Last year, Huarong, now China CITIC Financial Asset Management (2799.HK), bought into Bank of China H-share, becoming a over 3% shareholder. And it took one non-executive board seat of Bank of China right after.

Great Wall AMC, became a over 3% sharehoder of Minsheng Bank and got 1 non-executive board seat.

Xinda, via purchasing convertible bonds, became a over 3% sharehoder of Shanghai Pudong Development Bank.

These shouldn’t be taken lightly, as banks are heavily regulated in China. So there were political decisions made.

Japan history (2) – Where does power come from?

2/ Shogunate

Year 1192

Power established by an organized army (most powerful army, by killing opponents), and the recognition from Japan’s Emperor.

Kamakura Shogunate 镰仓幕府 (first Shogunate)

Minamoto no Yoritomo 源頼朝, born into the Minamoto clan, a prominent samurai family.

Defeated the Taira clan in 1185.

Emperor’s real power had decreased already; in 1192, Yoritomo became Sei-i Tai Shōgun, which have power over other feudal lords while the Emperor becomes figurehead.

Shogunate needs to be financially power to organize the most powerful army.

Imperial court came back into power after some time, but then replaced by Ashikaga shogunate 足利幕府, or Muromachi shogunate 室町幕府 (2nd shogunate)

Japan history (1) – Where does power come from?

1/ Taika Reform

Year 645

Power established by killing opponents (Isshi incident).

Emperor Kōtoku 孝徳天皇

Then the reform divided Japan into 66 “provinces”, the head of which may come from head of powerful families / clans.

Basically, before the reform, each powerful family may behave like its own king, but now the whole Japan only has 1 super / centralized Emperor.

Land is nationalized and taxed.

Emperor will over time focus more on religious work, thus getting power as decedents of God.

So $IBB generated negative return over the past 5 years…

And it probably should be down.

Top weighted companies within $IBB are Gilead, Vertex, Amgen and Regeneron.

Gilead 1q 2022 revenue was $6,590 million and 1q 2025 revenue was $6,667 million – no growth for 3 years.

Vertex 1q 2022 revenue was $2,097.5 million and 1q 2025 revenue was $2,770.2 million (but 1q 2024 revenue was $2,690.6, so revenue growth slowed significantly). Additionally, Vertex shows no growth in non-gaap operating income.

Amgen is better – 1q 2022 revenue was $6,238 million and 1q 2025 revenue was $8,149 million. But growth is smaller in operating income vs 3 years ago – non-gaap operating income grew to $3,599 million in 1q 2025 vs $3,140 million in 1q 2022, or ~15% growth in 3 years.

Regeneron 1q 2022 revenue was $2,965 million and 1q 2025 revenue was $3,029 million – no growth vs. 3 years ago and 1q25 vs 1q24 declined 4%.

Gilead and Vertex stock performance is not bad actually.

In the past 3 years, Gilead stock is up 75% and Vertex stock is up 50%.

However, the index is pressured – only those companies with promising new “story” to tell are up meaningfully. Existing business lines are not sexy as shown above.

No rising tide that could lift all boats post covid – only dangerous ones like rising interest rate.

“Technology”

Technology company isn’t necessarily asset-light.

GE was also a leading “technology” company in its days.

A technology company has no boundary.

It’s a group of brightest minds that bind together and shine wherever they sees darkness.

The TAM expansion is what makes “technology” companies amazing investments.

Tesla is not asset light.

Tesla is a technology company that is expanding its TAM.

Engineers that can only make cars make a company a car company. But if these engineers can do all sorts of designs and create new stuff, they make a tech company.

What I don’t understand about robotaxi…

For the same destination, Baidu’s Apollo robotaxi in Shenzhen will charge RMB 125 (before coupon) vs RMB 40 on Didi express (affordable tier, before coupon) and RMB 50 for regular taxi.

What’s also interesting is that Baidu’s robotaxi estimates that it will take 79 minutes!

Meanwhile Didi estimates it’s about 31 minutes, which is in-line with other map apps’ estimates.

Baidu robotaxi charges more than 2x the taxi price and takes more than 2x the time…

Well done.

Attaching the breakdown of Baidu robotaxi fare (before coupon)

BYD hit a ceiling in China?

BYD domestic volume in May shows no growth yoy, despite overseas growth of 137% yoy.

YTD (Jan-May), BYD domestic volume has grown 27.5% yoy, but in May it’s flattish yoy at below 300k.

The big promotion in May is probably a reason – dealers might had been waiting for the discount, so that May volume is low.

Current consensus is for BYD to sell ~5.4mn cars in 2025, with overseas contributing 0.8mn and domestic sales reaches 4.6m (to grow near 20% yoy).

China overall passenger car market can grow actually, with cheaper models, large population (4x US!), and shorter holding period for each car (due to battery).

In 2024, U.S. new vehicle sales reached approximately 15.9 million units.

16mn x 4 is 64 million cars per year for China vs. ~22.6 mn passenger cars sold in 2024 in China.

The infrastructure is unlikely to support a sudden increase, but if it increases to 30mn pear year, 70% NEV -> 21mn, 30-33% m/s for BYD -> ~6-7mn is probably the ceiling of domestic volume for BYD.

Endowment’s tax

Recently read the interesting discussion on endowment taxes from Matt Levine.

If endowments’ tax rate were to increase, they need to pay more on their investment income.

However, they might as well just include more payroll in its expenses, so that income before tax is significantly less.

Sounds very smart…

What’s the catch?

I guess –

if the entity needs to grow, it usually involves “net profit”. Thus it may grow slower, as more taxes will need to be paid each year for positive profits, unless net income is managed well to avoid near term taxes, or there is just no profit, which means it’s hard to grow (organically).

HKD is USD or not?

HKD is pegged to USD. The fixed range is 1 USD = 7.75 – 7.85 HKD.

However, a weird thing is happening recently.

HIBOR (Hong Kong Interbank Offered Rate) is dropping dramatically.

For a USD-pegged currency, its borrowing rate normally increases or decreases with USD, and is similar to USD, otherwise arbitrage may happen.

Fed’s fund rate currently is 4.25% to 4.50%.

HIBOR 1-month dropped from 4% to below 1%. from May to Jun.

May 2nd, 1 Month HIBOR is 3.98363% vs. Jun 19th, it’s 0.53506%

A 350 bps drop in 1.5 month! Crazy world.

Three things may happen:

1/ Fed to decrease interest rate.

That will probably happen within the next 12month, but not in the July meeting.

Possible in Sep and/or Dec meeting.

2/ HK to limit money outflow.

It will become more like mainland.

But why?

HK doesn’t have the incentive to do this. And Beijing also wants a special international finance center.

Thus, unlikely.

However, there might be more mainland’s RMB converting into HKD – think about SOEs.

Since they are under the direction of Chinese gov, they won’t participate in every corner of the global capital market.

These HKD will behave like under the capital control.

3/ HKD-USD peg breaks

Too big a thing.

In short-term, seems unlikely.

In early May, HKMA needs to sell HKD and buy USD.

In early May, the exchange rate hit the strong-side CU of HK$7.75 to US$1 four times on three trading days, during both Hong Kong and non-Hong Kong trading hours. The HKMA sold HK$129.4 billion in exchange for US$16.7 billion in accordance with the LERS mechanism.

After Fed’s rate decision in June, HKMA expects carry trades may drive USD stronger against HKD and makes HIBOR higher.

If carry trades are to persist, the Hong Kong dollar exchange rate may weaken further, and may even trigger the weak-side Convertibility Undertaking. In such a case, the HKMA would then sell US dollars in exchange for Hong Kong dollars in accordance with the LERS, leading to a corresponding decline in the Aggregate Balance, hence driving Hong Kong dollar interbank rates to gradually increase.

Why TACO?

1/ Trump has a family business to grow.

The world can’t go too chaotic.

(Rich) people can’t hate the Trump brand.

2/ Trump wins by tough negotiations.

This I am not sure. But if two sides are not talking, how could negotiation happen?

If negotiation is not happening… that’s where Trump does the best.

However, if people all believes it’s only negotiation… then it becomes tougher for Trump to gain in negotiation.

That’s why I am not sure.