[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

[INVESTMENT] MEMO - 31.08.2021

THE CULTURE DIFFERENCE

Last couple of weeks ago, I came across an article written by Ray Dario where he states that most Western observers had tended to not believe that the Chinese Communist Party’s usage of capital markets.

Well, I am not too surprise to that averment because I experienced myself first hand when I was a student in Australia. There is so much culture difference between the East and the West. It is not easy for an English-speaking (or educated) person to understand China when your main sources of information are from Bloomberg or CNN. Most of the reporters or even the news anchor there do not even speak or read Chinese.

WHY THE WESTERN DOES NOT UNDERSTAND THE EAST?

The simple answer to that is HISTORY.

Confucianism has rooted deeply in China for several thousands of years. It still has its influence on all aspects of politics and economy in China. Confucian thoughts have been the most basic mainstream value of the people in China and other nationalities in East Asia all through ages. 

One of the most interesting teachings or ethic of Confucian is filial piety. It is a virtue of respect for one's parents, elders, and ancestors. Filial piety is considered a key virtue in Chinese and other East Asian cultures. Confucian ethics do not regard filial piety as a choice, but rather as an unconditional obligation of the child. The pre-eminence of filial duty is demonstrated by a Chinese saying: Of all virtues, filial piety is the first (百善孝为先). Now you can roughly understand how important it is for filial piety in Chinese society. From such ethics and also to read filial piety in a broader sense, hierarchy, authority and obedience become important aspect of the practice. Most of the time, the junior is unlikely to challenge the authority of the senior.

However, in the West, people believes that liberty (of FREEDOM) and EQUALITY are the most important aspect of life. Parents and children have the equal right at home. It is also very common for children to live an independent life when they turn majority age or when they are able to do so. To read equality in a broader sense, Westerners treat liberty, freedom, democracy and equality above all, focusing of “humanism” whereby “man is the measure of all things”. Thus, the financial or economic system and liberation are constantly advocated by the West.

LEARN, LEARN, LEARN

There you go. Now you can see the difference between the two. Under the tradition of hierarchy, authority and authoritarian form of business, it seems that it did not create democracy similar to the United States and European countries. But one cannot deny the fact that such policy making process creates a relatively fast and stable progress as the implementation can be moved on the ground instantly to increase its efficiency.

The former Premier of Singapore, the late Lee Kuan Yew ever said:-

“Democracy does not bring good government to new developing countries. What Asians admire is not necessarily what Americans or Europeans admire.”

I am not here to debate or to make a judgment on which system or culture are more superior than the other. Who am I to judge?

I am here to express my humble views and to show you briefly the difference of the two as sometimes they can be confusing by just solely looking at certain event without thinking or applying their deeply rooted cultural background.

Despite the different, what is more important is how we should learn from each other and the people of both cultures can respect and accept each other’s values and educational system. To the very least, learn how to be a HUMAN. 

PORTFOLIO PERFORMANCE 

As of today, my portfolio for current month of August is down 1.04% mainly due to the bearish stocks in Chinese companies that I have invested in $BABA (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 diversification in the US stocks.

Since the inception of our fund in May 2020, we have been up close to 43.62%. We are still able to maintain our risk level at 3 or 4 as can be seen from the “average risk score”.

Happy National Day, Malaysia! Stay safe.

MNMLH

31.08.2021

[INVESTMENT] MEMO - 21.08.2021

TENCENT HOLDINGS

Tencent Holdings Limited $0700.HK (Tencent) has released its financial results last week for the second quarter ("2Q2021") ended June 30, 2021. I would reproduce some key highlights hereinbelow.

KEY HIGHLIGHTS FOR 2Q2021 

Its total revenues were RMB138.3 billion, an increase of 20% over the second quarter of 2020 ("YoY"). On a non-IFRS basis, which is intended to reflect core earnings by excluding certain one-time and/or non-cash items:

- Operating profit was RMB42.8 billion - increase of 14% YoY.

- Profit for the period was RMB35.1 billion - increase of 13% YoY. 

- Profit attributable to equity holders of the Company for the quarter was RMB34.0 billion - increase of 13% YoY.

- Basic earnings per share were RMB3.574 and Diluted earnings per share were RMB3.504.

The 2Q2021 financial review for each segment is also reproduced below.

VALUE ADDED SERVICE (VAS)

Revenues from VAS increased by 11% to RMB72.0 billion for the second quarter on a year-on-year basis. Games revenues increased by 12% to RMB43.0 billion. Mobile games VAS revenues increased by 13% to RMB40.8 billion, while PC client games revenues grew by 1% to RMB11.0 billion for the second quarter of 2021. Social networks revenues grew by 9% to RMB29.0 billion, mainly due to revenue growth from digital content services, as well as in-game virtual item sales.

ONLINE ADVERTISING

Revenues from Online Advertising increased by 23% to RMB22.8 billion for the second quarter of 2021, reflecting rising demand from advertiser categories such as Internet services and consumer staples, as well as consolidation of Bitauto's advertising revenue, which outweighed weakness in education. Social and others advertising revenues grew by 28% to RMB19.5 billion, due to increased adoption of Mini Programs as landing pages, more video advertising inventories inside Weixin Moments, as well as revenue growth from the mobile advertising network. Media advertising revenues were RMB3.3 billion, broadly stable compared to the second quarter of 2020, as greater advertising revenues from the music apps offset lower news advertising revenues.

FINTECH AND BUSINESS SERVICE

Revenues from FinTech and Business Services increased by 40% to RMB41.9 billion for the second quarter of 2021 on a year-on-year basis. FinTech Services revenue growth primarily reflected increasing digital payment transactions. Business Services revenues increased rapidly year-on-year, due to digitalisation of public services and traditional industries, as well as consolidation of Bitauto's Business Services revenue.

In short, revenue growth for all 3 core segments was solid. Overall, it was up 20%.

WHAT THE CEO HAD SAID?

The CEO of TENCENT, Pony Ma Huateng said: 

"In the quarter, we enhanced our services and achieved healthy growth rates across our business lines, particularly Business Services and advertising, while our game revenue benefitted from international growth. We are increasingly deploying our technologies and expertise to help SMEs, public services, corporations collaborate internally, and connect with their users externally, which we believe contributes to the real economy and to society at large. During the recent Henan floods, Tencent Docs, our cloud-based productivity solution, played a valuable role assisting people providing and seeking help, thanks to its collaborative data editing functionality."

 

MY TAKE

I am still positively in holding TENCENT in my portfolio. From the latest financial results released last week, the fundamental of the company still intact and remain solid. Thus, I see no reason to make any investment adjustment to my portfolio in Chinese companies, especially, TENCENT HOLDINGS.

PORTFOLIO PERFORMANCE 

As of today, my portfolio for current month of August is down 2.63% mainly due to the bearish stocks in Chinese companies that I have invested in $BABA (Alibaba) , $03690.HK (Meituan Class B) and $0700.HK. 

Since the inception of our fund in May 2020, we have been up close to 41.51%. We are still able to maintain our risk level at 3 or 4 as can be seen from the “average risk score”. 

Stay safe. 

MNMLH 

21.08.2021

[INVESTMENT] MEMO – 09.08.2021

REGULATORY CRACKDOWN?

There have been roller-coaster rides for the past few weeks in most of the Chinese technology stocks price. The free fall of stock price of some Chinese technology companies had prompted panic among investors to consider longer-term ramifications of such crackdown. TENCENT HOLDINGS Early August 2021, stock price of Tencent fell further in fear of further tightening on the gaming sector after Chinese state media decried the “spiritual opium” of games. Subsequently Tencent fell as much as 11% after an outlet run by the Xinhua News Agency published a blistering critique of the industry. Though the online link to the post was removed hours later and then restored to the paper’s website later in the day but with narcotics references stripped out. Tencent reacted quickly and pledged to limit play time for minors (limit its play time to an hour during weekdays and not more than two (2) hours during vacations and holidays). It also plans to forbid in-game purchases for gamers under 12-year-olds. MY TAKE 1. The investing landscape may have changed. Whether you like it or not, a major shift is under way in China as the Chinese government pushes for a reform in a positive manner aimed for a greater China. 2. China and USA rivalry is going to affect the cross-border listings of Chinese companies on USA equity markets. This may not be too positive for the investor but I personally think that Chinese companies may list its entity (IPO) in Hong Kong to avoid any geopolitical tension. Do not forget that Hong Kong is uniquely positioned as the key gateway between China and the international markets. 3. Having said that, a diversified portfolio should hold Chinese technology stocks even if it goes through some pain in the short term. 4. Looking back at my investment philosophy and strategy, my timeframe is long term – 5 to 10 years or more. So, I am comfortable to allocation certain percentage of cash towards companies such as $0700.HK (Tencent) TENCENT, $BABA (Alibaba) ALIBABA and $03690.HK (Meituan Class B) MEITUAN for the next few weeks (or months). I rather sleep comfortably at night, knowing that my portfolio is built sufficiently diversified to lower the risk of losing everything. SIDE NOTE Last weekend, l came across an article written by RAY DALIO titled: Understanding China’s Recent Moves in Its Capital Markets. I think everyone should read it as he provides a very thoughtful insights of the recent moves in China’s capital markets. I will provide the link below. www.linkedin.com/pulse/understanding-chinas-recent-moves-its-capital-markets-ray-dalio/ PORTFOLIO PERFORMANCE My portfolio for current month of August is very volatile mainly due to the Chinese tech companies stock crash. Since the inception of our fund in May 2020, we have been up close to 43.27%. We are still able to maintain our risk level at 3 as can be seen from the “average risk score”. Stay safe.  

MNMLH 09.08.2021

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[INVESTMENT] MEMO – 30.07.2021

On 27.07.2021, the Heng Seng Tech Index was down 8%. $9988.HK (Alibaba Group Holding Ltd (Hong Kong)) was down 5% and Tencent was not spared as well, was down 10%. The following day, the downtrend continued.

If you compare the peak of Tencent at HKD757.00 with the current price of HKD446.00, you can feel is crash is real and solid. About 41% of its market capital has been vanished from the crash. The peak of $03690.HK (Meituan Class B) (in February 2021) at HKD445.00 and current stock price at HKD194.00, more than 50% of its market capital has been wipe out. This is quite a madness to me. Is it over for Chinese tech stocks? Well, I do not think so. I still stand by my opinion as per my Memo dated 09.07.2021. Thus, I have added a few positions to my current portfolio. There are:- 1. $BABA (Alibaba) 2. $0700.HK (Tencent) My reasons are simple. 1. I want to take this advantage of the permissive sentiment on the Chinese tech market. Lately, regulatory scrutiny in China over the issues of anti-trust law and crack down on big technology companies had sent the share price of some big tech companies into downtrend. But I do not see this as a long-term issue with them. 2. Yes, Chinese government may have been tightening the rules on all Chinese tech companies, but what I see here is that such regulatory control (such as improve in social security or working condition, anti-competition) is beneficial to all the Chinese community, consumers and small businesses as a whole. It actually forces the companies to enhance its services and platform. In the long run, the business of the tech companies can grow in a positive way. 3. Why Alibaba? It is simple, you can refer to my MEMO dated 14.06.2021. Cloud business in Alibaba is still growing, and it is not show any sign of stopping. 4. Why Tencent? The gaming business is booming and, from the past records, Tencent is in decently high profit margin businesses. RISK Not that investing in those companies are completely risk free. Risks always existed in investment, especially investing in the above-mentioned companies. Can the stock price of those companies crash further? Will they rebound to its peak again? What is the bottom price? When to buy? When to sell? Is this an opportunity to buy? I have no answer to all of the above questions because I do not know. What I know is that I am comfortable (within my financial ability) to add some positions to the above-mentioned companies, by not holding too much cash, for now. PORTFOLIO PERFORMANCE As of today, my portfolio for current month of July is down 3.51% mainly due to the Chinese tech companies stock crash. Since the inception of our fund in May 2020, we have been up close to 48.66%. We are still able to maintain our risk level at 4 as can be seen from the “average risk score”. Stay safe. Norman Liew MNMLH 30.07.2021

[RESTAURANT] 长春青面 （菠菜面）Green Noodle of CHONG CHON CAFE, Kuching

 

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