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Self-fulling markets

Self-fulfilling thesis seems everywhere.

Housing – rising home prices -> more people want to buy; banks willing to lend more -> more people can buy -> higher home prices..

Liquor/baijiu (Moutai) in China – buy Moutai stock & Moutai liquor-> Moutai will rise in value over the years (due to inflation etc. and company may raise prices) as an “investment product” -> you can even take “equity/cash” from the liquor you bought -> you can buy more Moutai or Moutai stocks -> excessive demand will drive Moutai price & Moutai’s financials thus stock price shall go up -> investors make profit on stocks and can buy more Moutai or Moutai stocks…

Tesla – buy Tesla stocks & put down reservations -> stock price rise due to higher demand -> use profits from Tesla stock to buy real Tesla cars, which can contribute to Tesla financials -> stock price rises… This may work well at early stage when volume is low.

 

 

TSMC in EU

Capital structure. The setup seems simple. Total cost is 10 billion euros. German gov shall give 5 billion euros in subsidies. TSMC will put down 3.5 billion euros, for a 70% stake. Bosch, Infineon Technologies and NXP Semiconductors will each put down 500 million for a 10% stake – 30% total.

Timing. TSMC’s fab in Japan announced in Oct 2021, started construction in Apr 2022 and is finishing in Q1 2024 (2 years of construction), and began mass production in H2 2024. The Kumamoto plant will start with 28-nm and 22-nm chips.

TSMC’s German fab hasn’t started yet. Should it began construction in H1 2024, it should finish in 2026 and start mass production in 2027. which sounds a bit far away. And this fab is for mature node (28/22nm planar CMOS and 16nm/12nm FinFET nodes).

Cost. Back in 2016, TSMC’s Nanjing plant (Fab 16) is said to cost $3bn for 20,000 12-inch wafers per month, plus the construction of a design service center. The German plant is designed to have 40,000 wafers a month, but still, the cost has inflated to almost 2x after 8 years, or ~8% annually.

 

MSCI China 2023 EPS growth expectation vs. reality

MSCI China EPS in CNY terms from 2023 Q1-Q3 is 1.08, 1.23, 1.25, growing 3.85%, 1.65%, 2.46% yoy.

While reversing the downtrend in 2022, the growth is less than expected. Even with 23q4 current expectation of 9% growth yoy, MSCI China EPS growth is ~4.3% for the full-year 2023.

What was the expectation at the end of 2022 / early 2023?

Let’s take a look:

UBS (Nov/Dec 2022) – “We expect significant easing in COVID-19 restrictions in the second quarter. We forecast earnings growth of 15%-20% for MSCI China, which would be underpinned by lower commodity prices, improved economic growth and lower asset write-downs,”

Morgan Stanley (EPS growth in 2023: 12% -> 13% -> 16%) – for 2023 YE MSCI China Index target, in Nov 2022 report it was 59; raised to 70 in Dec 2022; raised again to 80 in Jan 2023

Goldman Sachs (Dec 2022) – “revise up our earnings forecasts to 13% from 8%” (the link is a report in Jan 2023 but revision is made in Dec 2022.

Citi (Jan 2023) – “expects earnings per share for the MSCI China index to grow 15% year-over-year in 2023. ”

The outcome is the big miss in earnings. We are like to see ~2% 2023 EPS growth in reality vs. expectation of ~15% at the beginning of the year

 

 

German car market 2023

Based on German’s official passenger car registration, here are some takeaways:

  • 2023 total German market is ~2.84mn cars, up 7.3% yoy from 2022; but in 2019 that number is 3.6mn, so still down 21% from 2019-level (most decline happened during 2020 and 2021)
  • German brands got ~52% market share and the three German companies got ~59% market share

  • Audi (+16%), Mercedes (+14%), and BMW (+11%) brands are all share gainers from 2022
  • Skoda (+17%) and Seat (+19%) brands, owned by VW, are also share gainers
  • Tesla, although with a local factory, only got 2.2% market share in 2023, and is losing shares in German vs 2022; German market is less than 4% of Tesla’s global deliveries
  • Ford got 4.1% market share in 2023, and keeps losing market share. Pressure continued since covid. Ford new registration in German dropped over 30% in 2020 and dropped another 35% in 2021. Its 2023 number is still a bit lower than 2021
  • Two South Korean brands, Hyundai and Kia, are flattish in number of cars, but lost small share as the market grew.
  • Toyota new registration PV dropped 4% yoy, also a share loser in German.

Market share in 2023 by origin of brands

 

China mutual fund size over time

Based on official data. Mutual funds can be several types: equity, debt, money market, QDII (foreign), mixed etc.

Therefore, “equity + mixed” types should represent the domestic rmb equity market mutual fund sizes.

The mutual fund size peaked in 2021 and kept dipping in 2023.

 

Japan’s capital market to thrive (?)

Japanese gov has been pushing for corporate governance reform for years.

It has drawn lots of attention, but how effective is the result? Several things to watch:

1/ new M&A guidelines – aim to spur M&As. But can real deals happen soon? can these deals not only give shareholder returns, but also easy for acquirers to consolidate/get synergies after the deal?

2/ “Doubling Asset-based Incomes Plan” – aim to let more retail investors buy more stocks. Seem to be a good idea and retail investors can pay higher p/e, but will people just buy more US stocks? will people really buy in the improved corporate quality narrative?

3/ investors communication / forums etc. – maybe can make more info available in english first?

It seems harder to move money (in & out of JP to the US) compared with say HK.

Plant meat didn’t work so far

Meat consumption is huge in China. But Beyond Meat didn’t win the market even it has a local factory.

In November’s q3 earnings call, Beyond Meat says it is doing “a review and potential restructuring of our operations in China”.

A local factory in Shanghai can’t solve Beyond Meat’s problems globally.

Why Beyond Meat didn’t work?

1) Price is too high. Retail price could be ~$10 per pound, or 40+% higher. In earnings releases, Beyond Meat in 23q3 sold 7.199 mn pounds of meat through US retail for 30.518 mn, which translates to $4.23 per pound (the price Beyond Meat sells to retailers). And Beyond Meat is mostly making gross profit loss at these prices. Not to mention the high interest rate and inflation pressure that lead to consumer trade-down.

Beyond Meat patties in Walmart – $9.68 / lb

normal beef patties in Walmart – $5.6 – $7 / lb

Products sold in China is actually at similar price in the US (40 rmb, or $5.6 for 2 patties; 60 rmb, or $8.45 for 4 patties, or 1 lb) – expensive compared with other meat options in China.

Pork (main protein) is ~$1.3 / lb in China.

Beef price is ~$4.6 / lb in China.

2) In restaurants (fast-food chains), the products didn’t take off – not welcomed by consumers. McDonald’s discontinued McPlant in mid-2022, which is a Beyond Meat burger. Burger King, the early adopter of vegan burger (from Impossible Burger) now says “it’s not a big part of the current focus.”

3) There are some fundamental issues with the product: e.g. plant- based protein is less likely to be absorbed compared with real meat.

Fed is bullied by the market – why?

Market news nowadays are saying that Fed is bullied by the market.

e.g. FT article: The Fed should resist market bullying

What’s “bullying”? Seems to me that market is leading and Fed is just following the market.

Why is this the case? I got three reasons:

1/ 2024 is election year. Market knows Fed needs to help the economy.

2/ Market understands data better, and Fed has been saying it’s “data-dependent”; no wonder why market (e.g. hedge funds) is leading with all those high-frequency data. Hedge funds can simply simulate what data Fed is receiving and even have better real-time data than the Fed.

3/ Some market players can “influence” or “control” the data. Sounds absurd. Just an example – what if hedge funds can buy up goods which would cause inflation when needed, or sell them at low prices to cause deflation when needed. As long as they can make huge profits in the market, it can be worth the cost.