[INVESTMENT] MEMO - 29.09.2021

Hello, everyone! Time flies and it is now end of September 2021.  

EVERGRANDE  

One of the largest real estate developers in China, Evergrande sparks fear among the investors worldwide couple weeks ago due to its fears in default on domestic bond.  

Over past years, Evergrande expanded aggressively and also at the same time stretched its financial leverage by borrowing more than $300 billion.  

Back in year 2017, the Chinese government acknowledged that the price of the real estate was just too high due to speculation, so they tighten the real estate market where President Xi Jinping’s comment at the 19th party congress that “houses are for living in, not for speculation.”  

The Chinese government then introduced the the “three red lines policy” on selected developers after an August 2020 meeting in Beijing that occurred against a backdrop of growing debt levels, rising land prices and booming sales.  

What are those three (3) red lines?  

1. 70% ceiling on liabilities to assets (excluding advance receipts) 

2. Net gearing ratio of less than 100% 

3. Cash to short-term debt ratio of at least 1  

In simple term, the Chinese government wants the developer to reduce their financial leverage and to maintain a healthy balance sheet.  

Unfortunately, Evergrande failed to meet most of the metrics above and is short on two (2) of them. Failure to meet these metrics means no access to new loans.  

TOO BIG TO FAIL?  

The serious potential fallout of such heavily-indebted company collapsing has led some analysts and investors to think that it may pose a risk to China’s financial system and also suggest that Beijing may step in to rescue it because it maybe “too big to fail”.  

I am not going to speculate any of the above. I believe Evergrande’s crisis is unlikely to create a shock to the entire China’s financial system. We have to look at the history that just in recent years, an insurance company, Anbang with similar debt burdens was successfully restructured without any systemic shock.  

By imposing the “3 red lines” policy, it clearly had shown that the Chinese government has been actively managing the amount of capital absorbed by the real estate industry. and putting stricter controls in place to ensure a more sustainable future. Such policy directly or indirectly mitigates the risks by preventing its liquidity problem turning into an insolvency problem in the Chinese financial system.  

As long as the Chinese government can create stability in the financial system, I have no doubt that China’s economy will boom.  

MY INVESTMENT  

Meanwhile, I have a made some adjustment and investment to my portfolio. I added my position in the following company in September: -  

1. APPLE $AAPL (Apple)

The Chinese company that I like which I am still holding in them are:-  

1. TENCENT $0700.HK (Tencent) 2. ALIBABA $BABA (Alibaba) 3. MEITUAN $03690.HK (Meituan Class B) 4. PING AN $2318.HK (Ping An Insurance)

PORTFOLIO PERFORMANCE  

Solely for the month of September 2021, my portfolio performance is down 4.65%. Overall, my portfolio performance currently is up at 22.61% since its inception in May 2021.  

Stay safe.  

MNMLH 

29.09.2021

[INVESTMENT] MEMO – 15.09.2021

Hello. I hope everyone of you are well.

 

Nothing much for me to update at the moment. Delta variant continue to spread fast in Asia, including my country, while the authority rolled out the vaccination as fast as they could to combat Covid-19.

 

We all know that variant is the one who is likely to further slow the economic rebound as employees and the mass public were still being held back from returning to office or gathering in the public space. Further, the regional supply chain can be further disrupted and consequently affecting growth due to the variant.

 

APPLE $AAPL (Apple)

 

Last Friday, the Apple’s App Store payment battle between Apple and Epic Games (Fortnite developer) came to an end, for the time being. The U.S District Judge ruled against Apple, saying that the company must let app developers direct their customers to alternate payment methods outside of the App Store. The Judge ruled that Apple has until 5th December to make changes to its App Store payment options. It basically means that Apple may lost their monopoly of taking a 30% cut on their App Store and they may not be able to request developers to use their in-app payment system. Apple has said it intends to appeal the decision.

 

The above decision certainly may affect Apple in the short term. Well, the thing is, I am not investing in Apple for short term. Looking back at the fundamental of Apple and its strong economic moat, I will continue to hold Apple for long term unless there is any substantial event(s) which can disrupt or shake the fundamental of Apple.

 

READING

 

I have been reading a lot for the pass two (2) weeks. Though I am not working from home, I spent all my reading times after work. I bought a book called PRINCIPLES by Ray Dalio last week and intending to start my reading this week!

 

PORTFOLIO PERFORMANCE

 

As of today, my portfolio for current month of September is down 0.74% mainly due to the bearish stocks in Chinese companies in $BABA (Alibaba) (Alibaba) , $03690.HK (Meituan Class B) and $0700.HK (Tencent) . But my portfolio is still able to withstand the bearish sentiment from China because of our strategy in diversification of portfolio.

 

Since the inception of our fund in May 2020, we have been up to about 38.24%. Our “average risk score” still remains at level 4.

 

Stay safe.

 

MNMLH

15.09.2021