Tag: Investing

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

 

 

Commercial real estate problems summary

A good summary from Rob Stuckey, head of Carlyle’s U.S. real estate funds, on US office building weakness, from Insights and Indicators podcast by Carlyle:

  1. Already weak before pandemic
    • oversupplied
    • low operating margin
    • high correction to GDP / exposure to macro cyclicality
  2. Secular trend of work-from-home / technology trend

Factors to value real estate

  • demand drivers (macro/GDP, demographics)
  • technology
  • operating margin (high maintenance/recurring capital expenditure)
  • tenant stickiness (demand ever increasing)

 

Tesla SOTP… $360bn?

Two biggest component would be electric vehicles and AI.

EV: BYD is <$100bn; BYD delivered higher profits than Tesla; BYD also has energy storage business

AI Models (FSD): OpenAI is <$100bn; latest valuation appeared to be $86bn

AI Chips: AMD is ~$160bn. Tesla should be years behind in terms of external revenue profits (as a business) etc. Let’s just use $160bn, as Tesla has some other business.

Then it sums up to be $360bn = $100bn + $100bn + $160bn

Last time I checked (before earnings), it’s more than doubling that number…

Robots? Boston Dynamics was $1.1bn back in Dec 2020.

Charging? ChargePoint ($CHPT) is ~$1bn market cap.

If someone wants to add ride-hailing services I mean Lyft is <$5bn, not significant.

Even additionally add Enphase and First Solar, which were ~$13bn and $16bn, still not big enough to move the needle.

Insurance could be big. However, if it’s not good enough/taking over now, why it should be in the future? It shouldn’t be a futuristic thing; auto insurance has a history of over 100 years.

$400bn or lower sounds about right.

Investing in China: regulation and justice

It’s difficult to understand each regulation. But I think there is a better, more fundamental and actually easier way – through the lens of justice.

However, there seems to be a difference between what China focuses on vs. the West when it comes to justice. In short, I feel that China weighs a fair outcome over procedural justice.

This difference could partially be explained by the fact that China doesn’t always operate based on exact rules. It could be hard to develop a robust law system in a short period of time and in an evolving society. In fact, rules can be modified to suit the needs, which is the opposite of mainstream western belief. 

When big global companies may get away with perfectly executed deals, Chinese companies may face the consequences afterwards (even before regulation is in place). After all, trouble may come in various forms.

That being said, justice is important. A company may build goodwill to offset any negative consequences it may create, especially formalized in the future. For example, Tencent’ gaming business is lucrative and from time to time is seen to have negative impacts on teenagers. Although Tencent could be procedurally perfect and compliant, it may not be enough. I believe it’s the WeChat etc. that brings a good amount of positive progresses that provide a cushion. Therefore, as those balanced out, it’s not injustice for Tencent to make such a large sum of money.