On China Economy

Richard Koo (economist on balance sheet recession) noted that 

- China is in balance sheet recession. But it is in difficult position, as its 2022 govt budget deficit was 7%, before the balance sheet recession. So the govt may not be willing to roll out big stimulus. (link)

- To fend off the balance sheet recession, China govt should borrow more, as there is no borrower besides govt in balance sheet recession. A committee comprising of smart people should be set up to identify good projects for Govt to spend on. (link)

    - Good  projects are those with sustainable social returns more than the cost of capital. As the returns are sustainable, the money spent on such projects will not be wasted

    - Cost of capital refers to long-term govt bond yield which is 2.4%.

    - The projects need not be infrastructure project. For example, for Spain, a project to teach english to their tour guides could be worthwhile, as this will help their tourism.    

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China 2Q 2024 GDP is 4.7%. Its Jun retail sales growth is weakening at 2% growth. 

- Luxery brands noted abysmal sale growth in China in 2Q 2024. 

- Chow Tai Fook Jewellery Group has 20% decline in sales in 2Q 2024. 

- Jiumaojiu announced profit warning for 6 months ending Jun 2024. (Jiumaojiu operates Tai-er, Song Hot Pot restaurants) 

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China is rolling out measures:

 Monetary measures

Cut 1-yr MLF by 20bps to 2.5%. Cut 1-yr and 5-yr LPR by 10bps. https://x.com/Sino_Market/status/1816284949072191699

Fiscal Measures

$300b rmb special bond fund for trade-in program, lower requirements. https://x.com/Sino_Market/status/1816376732565528745

SOE investing 3 trillion yuan over next 5 years to upgrade equipment and renovations. https://x.com/Sino_Market/status/1816676718872264828

I guess that China will not roll out any large stimulus for consumer consumption, as it could be too wasteful given their budget constraint. 

On Index ETF

Selling VWRA 

I hold two Global index ETF (accounted seperately from my stock portfolio), such as :
- VWRA (Vangard FTSE All-World UCITS ETF USD Acc)
- JPGL (JPM Global Equity Multi-Factor UCITS ETF - USD acc)

I sold VWRA yesterday, because 
- US stocks are quite overvalued and 63% of VWRA are of US stocks
- Mag 7 (excl Tesla) are top 6 holdings of VWRA accounting for ~16%. 
NASDAQ has been falling the past week, as funds are rotating out of tech into stocks 

who may benefit from possible interest rate cut in future. 

For JPGL, I am holding on to it for now, as it is quite diversified. It's largest holding account 

account for 0.34% only. And its tech exposure is only 8.3% of portfolio. 

Other (local) ETFs holdings

I also hold three local ETFs (accounted seperately from my stock portfolio):

- STI ETF 

  

This was bought using SRS funds. Most of the purchase was done before Covid. STI ETF is yielding 4% currently. It is a long-term holding, as SRS options are limited and it is good to have some holdings in SG stocks when I am liviing in Singapore. 

- NikkoAM-StraitsTrading Asia ex Japan Reit ETF (CFA)

 

This is bought recently using CPF funds at $0.759, as CPF options are limited. I have blogged about the purchase earlier.

- NikkoAM SGD Investment Grade Corporate Bond ETF

This is bought using cash and CPF fund. It is bought for bond allocation purpose. From its May 2024 factsheet:

Improve Singapore stock market -- Put 5-10% of CPF Life funds into SGX listed equities

There's talk of improving returns of Singapore stock market nowadays (see CNA article) by

- Improving corporate governance

- Asking our sovereign funds (Temasak Holdings/GIC) to invest more in Singapore stocks. (Govt said no - article link)

- Getting quality firms to list in Singapore, which has very few new listings nowadays

I would, however, suggest that Govt put in 5-10% of CPF Life funds into Singapore stocks. It can be done in stepped manner e.g. put 1% of CPF Life funds into SGX equities every year until it hit desired X%

- This will boost returns / liquidity for Singapore stocks.

- This will enhance long-term returns of CPF Life fund, as CPF Life fund is an annuity fund that will last for a long time. This long duration is suitable for some of the funds to be deployed into Singapore equities which is likely to beat or be in line with 4% returns in the long run* but has short-term volatility

*Based on STI ETF webpage, 10-year annualised returns (ending Jun 2024) of STI index and STI ETF is 4.24% and 3.82% respectively. The annualised returns since the start of STI etf is 6.46%. 

- Compared to other countries, Singapore stocks tend to have higher dividend yield and lower volatility. This makes it appealing for annuity funds such as CPF Life fund (and income-seeking investors too). 

China Aviation Oil (G92)

China Aviation Oil (SGX: G92) supply/trades jet fuel and owns 33% stake in Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA). 

To me, it is a play on China recovering outbound travel (i.e. more outbound flights = more jet fuel supplied + higher profit for SPIA ). Based on aastock article , current chinese international passenger traffic is only 88.1% of 2019's. Hence, the recovery in outbound travel has some way to go.

Currently, China Aviation Oil (CAO) trades at $0.88, which is around LTM 9.5x PER. Net cash per share is around $0.58. 

It's 2023 profit was $59mil. In 2016-19, it's profit ranged from $85mil to $99mil. So if CAO's profit could recover to 2016-19 level, the share price is likely increase accordingly. 

(Note: I am vested in CAO.)

1H 2024 Notes

 1H 2024 Performance

Stock portfolio acheive 17% returns in 1H 2024. This is due to 

- HK market recovery, as 70% of portfolio are in HK stocks.

- Pivot to strategy of buying HK small caps with growth potential at reasonable prices (or growth at reasonable prices). Also had stocks with negative Enterprice Value (when bought - e.g. Cosco Ship Intl (sold), Yuexiu Services) and good diviend yield

Regrets

Sold some CNOOC stocks at $13. Now CNOOC is at $23.

Worse the sold CNOOC funds are used to buy China Ovs Ppt at high price. Now, I am holding China Ovs Ppt at >15% losses. 

Samsonite reached $30 earlier in the year due to rumors of privatisation. On hindsight, I should have sold some then. Now it is at $22-$23. 

Hopeful on China Property Services Stocks

While China property developer  stocks are crashing, I am hopeful on China property services stocks.  This is because 

- I view China property services companies akin to Singapore companies providing S&CC services to HDB flats; these services are like day-to-day necessities. Hence the revenue of property services companies should be stable. 

- China property services companies have enjoyed good growth in recent years. 

- Valuation of China property services companies are not high, as sentiment is affected by China property troubles. 

I am holding 2 stocks on China property services stocks i.e. Yuexiu Services and China Ovs Ppt. They are China state-owned companies. I avoided private property services companies, as they could be affected by the poor state of parent developer company.

On Dividends

I started investing in 2005. I did not pursue dividend investing intentionly. 

Over the 19.5 years, around half of my stock portfolio returns are from divdends. Dividends help to stabilise the stock returns. When returns are poor or negative, dividends income had held steady to some extent. When returns are good, the returns are mostly from capital gains and not so much from divdends.