Tag: Investing

Solar, Baijiu, and Banks

From 2021 to today,

Solar in aggregate went from 3 trillion rmb to 2 trillion rmb;

Baijiu in aggregate went from 5.4 trillion rmb to 2.4 trillion rmb.

These two sectors along lost 4 trillion rmb in market cap.

Guess who gained?

Banks in aggregate went from 10 trillion rmb to 14 trillion rmb in market cap, gaining 4 trillion rmb in about 4.5 years.

Solar and Baijiu are more private companies.

Banks are more SOEs.

Solar is a representation of how involution destroyed value;

Baijiu is a representation of how declined consumption/macro pressured stocks.

Value trap and being contrarian

Consensus can be right for a long time — ride it while reflexivity is reinforcing it, but be ready to turn contrarian near the inflection point.

It is not “always go against consensus.”

George Soros says the crowd is right 80% of the time.

“Most of the time I am a trend follower … Only at an inflection point are we rewarded.”

His key idea is reflexivity: market prices are shaped by investor bias, and those prices can then affect fundamentals, creating boom-bust loops. So the contrarian opportunity is when the market’s “prevailing bias” has gone too far and starts to reverse.

Being contrarian for most of the time is dangerous.

Being contrarian in investing for too long can be dangerous.

On the upward trend, if you are against the trend and short the stocks, Tiger Mgmt is a case in point – Tiger Management, run by Julian Robertson, effectively shut down in March 2000, right as the dot-com bubble was peaking.

Robertson was acting like a classic contrarian:

  • “These internet stocks are absurdly overvalued.”
  • “Eventually fundamentals will matter.”

Both statements were true.

But Soros would likely argue that Robertson fought the trend too early. A reflexive bubble can become much larger than valuation alone would justify.

On the downward trend, if you are against the trend and long the stocks, there is a term called “value trap”.

Sometimes the crowd is right: the business is structurally deteriorating, ROIC is falling, or the terminal value is lower than historical multiples suggest.

For value traps, the key question is not “is it cheap?” but:

What changes the prevailing trend?

In the case of investing and cigar butt investing like what Warren Buffett did in his early days, he bought near/below liquidation value.

In addition, he had an exit path.

Cigar-butt investing often worked through liquidation, tender offers, buybacks, asset sales, control pressure, or mean reversion. It was not “this bad business will become great.”

So Buffett avoided value trap with asset/liquidation value protection + catalyst/control.

That is even harder in China, as there is little space for an activist in China investing.

Top buyers of gold

Central banks buying gold is a theme for bull investors in gold.

But that doesn’t automatically become a reason to buy. Several things to know before buying.

1/ Who exactly are buying?

I looked it up.

In 2025,

Biggest central bank buyer Poland: 102 ton

2nd place Kazakhstan: 57 ton

3rd place Azerbaijan: 53 ton

Down the list: Brazil, Turkey, China, India, etc.

Surprisingly, most developed countries are not on the list.

European central banks are net sellers.

2/ Net-net, are they buying more

In 2025, they actually bought less than 2024, about 20% lower in tons.

3/ Why do they buy?

The interesting surge happened in 2022.

This coincides with US kicked Russia out of SWIFT etc.

This explains the difference – if you are a retail investor living in OCED countries, you probably don’t need to buy gold vs. some central banks must buy gold to de-risk.

Munger said before, gold is “a great thing to sow into your garments if you’re a Jewish family in Vienna in 1939.”

If you are not trying to relocate out of a turbulent country, there is probably not much reason to buy gold.

$SOXX rebalance

$SOXX will rebalance quarterly.

Its top 5 positions have capped weight at 8% and the remaining will be capped at 4%.

During the quarter, if some stocks run too hot, it could have a larger weight than the cap.

This will create excessive selling as companies like Marvell has heavy weight in $SOXX now but needs to be at 4%.

The rebalance will take effect on Jun 18, 2026.

Other companies like $MU will also need to be sold to reduce weight.

The unusual inflow

In recent 2 weeks, US stocks especially tech/QQQ went straight up, before the AVGO disappointing earnings.

There is an unusual capital inflow that accelerated.

It’s not just FOMO after fabulous run in April and May.

China’s recent crackdown also played an role – as Chinese investors investing overseas fear that they can’t add/buy for the next two years, they rushed to buy a lot!

And they are more likely to chase high beta stocks, leveraged ETFs.

That’s a problem in the short run.

And a correction should normalize this.

These investors can still sell according to rules; they can also buy/add when being abroad.

The end of a cycle of liquidity for Chinese ADR and overseas listed companies

Investors rediscovered China mostly after the policy shift in Sep 2024.

However the ADRs and overseas listed companies still sold off in the subsequent month and the “924” effect nearly reversed.

The second wave of enthusiasm came with the famous “DeepSeek moment” in Feb 2025.

However, the entire world including Chinese ADR and overseas listed companies sold off with Trump’s liberation day in Apr 2025.

The current cycle is the third one and it plays out longer.

While the previous two cycles are fundament driven (policy and tech), the third cycle is a liquidity one I believe.

The most obvious sign is the near zero HIBOR (HK over night interest rate), starting in May 2026.

Meanwhile, there are various short-form videos, social media posts and anecdotes about mainland Chinese people go to HK to open bank accounts and brokerage accounts.

The troubling sign emerged probably when IBKR rejected mainland Chinese to open accounts in Oct 2025.

The Chinese ADRs and overseas listed companies peaked about that time with subsequent AI bubble worries etc.

As the stocks had risen for quite a few months and are at quite elevated levels, it also took time for it to come down.

Iran war accelerated this.

And the Futu/Tiger/LongBridge news in May 2026 marks the end of the cycle.

While it can take some time for remaining selldown to happen, it seems still manageable and valuation is not demanding.

The memory shock to investing

The explosive rise in memory prices has profound impact.

One is in investing and valuation framework – you now have several memory names (like SK Hynix, Micron, SanDisk) that is trading at single-digit or 10x current year P/E with expected high earning growth into the future.

And these companies are large enough to absorb tons of capital.

The indirect impact? Other companies’ valuation now looks absurd!

The previously dirty cheap companies lose investors. For 10x P/E, you can buy memory names with much stronger growth!

If the only reason to long is undervalued, then it becomes harder to justify the buy.

Additionally, those companies with reasonable moat, single digit growth, 20-30x p/e also lose – 2-3x PEG looks absurd now.

This hits many consumer or healthcare names.

No delta, no acceleration in growth = no interest.

Focus on OPEX

While the last few years AI investments are correlated with companies’ capex, I think the next stage is to focus on opex.

As customers of LLMs and agents, how many tokens are consumed and what is the cost of that? That will show up in operating expenses.

This will be supportive evidence of strong revenue growth for companies like Anthropic etc., just like looking at Meta’s capex comments for Nvidia’s revenue growth.

The 5-year cycle in China investing

Every five years, China will have a new Politburo Standing Committee.

There are 7 members now, which are considered the most politically powerful people in China.

Not all members are new, some can stay for 2-3 term.

But the fight for becoming a new standing committee member can be quite intense.

There can be ripple effects across other areas in China.

Stock market can be quite sensitive to unknowns and turbulence.

To avoid uncertainties, it’s wise to stay away from it.

To compensate for staying on the sideline for about one year, the previous year can be quite a good year.

That seems to the case for the last 2 terms – 2017 and 2022 were the year of new committee selection. The “fight” could start in 2016 and 2021. Thus the “good” years were 2015 and 2020.

The next term is 2027. The “fight” could start in 2026 and 2025 was the good year. That seems to be the case so far.

 

PE multiple

PE multiple is not only a reflection of earnings quality, earnings growth/cagr, etc.

It’s also an encouragement or discouragement for value creation.

If $1 of profit is worth 10x in HK and 50x in A-share, companies could be more encouraged to create more value for A-share shareholders.

The same rationale also applies to upstream or downstream players – PE multiple can influence whether revenue or profit should sit more or less in supplier or customer etc.