China Policy U-Turn

On 24 Sept 2024, China announced monetary stimulus which some described as mini-bazooka. 

Source: https://www.thinkchina.sg/economy/can-chinas-latest-stimulus-package-save-its-economy

Since then, China government is holding more press conferences. One was by NDRC which was disappointing. The other was held by China Ministry of Finance on 12 Oct 2024, which noted 

- more borrowings from China Govt to resolve the local govt debt 

- money raised from special bonds will be used to buy unsold homes and turn them into subsidised housing.

No numbers or new measures were announced, as new measures may need approval from their meetings in Oct later. 

More details: https://x.com/Sino_Market/status/1844960349130547641

Today (14 Oct 2024), there is another govt press conferenence on increasing support for companies. (See https://x.com/liqian_ren/status/1845647863188984221 )

From the above, there seems to be a U-turn in China policy. 

In 2021, there were the 3-red lines for property developers and tech  tech / education / gaming crackdown. 

Now there are monetary stimulus, more govt borrowings and hopefully, some fiscal stimulus in future. China is realising that its economy needs help and its people need more confidence in the economy. 

In medium term, I am hopeful of more support measures from China Govt, and China CPI should rise above 1% level. 

I am also hopeful that China/HK markets may have bottomed. There will be some volatility but we are unlikely to see lower lows. 

Rant: Forgotten

HSI rose 24.5% in past 2 weeks. 

China Aviation Oil (CAO) trades at 7x PE and benefits from China outbound travel. It rose only 7% in past 2 weeks! Why is this so? Because CAO is listed in SGX. 

TravelSky is listed in HK and it rose 33% in last 2 weeks. 

Singapore is a forgotten market. Especially for non-reit, non large cap stocks. 

Some purchases and sold options

Sold Call Option on Futu (call price $120, 20 Dec 2024) 

I sold call options on Futu. The quantity is 50% of my position in Futu. On Thursday, Futu reached $122. 

At $120, Futu is > 30x PE (TTM). Looks like my selling of called options have limited my gains for now. 

Bought ICBC and CCB

I watched Master Leong Youtube videos and had followed him in some buying CCB and ICBC this week. Did not buy Bank of China, as its share price ran up. 

The purchased stakes are not large, as earnings growth of China Banks is limited. 

Probably, it is a pychological purchase i.e. to relieve my FOMO on this China/HK bull run. 

Bought Conant Optical (2276)

Increased my position in Conant, as it is going to supply lenses for a MNC consumer electronic company and it is developing lenses for VR products. 

Its share price did not run up in this China/HK bull market.

Conant produces spectable lenses and have substantial sales that are exports. Its sales and profit rose in 1H 2024, partly due to appreciation of USD against RMB. Now, as RMB revalues, its profit may be affected.

Nonetheless, with ROE of 28% and stable growth rate for past few years, the current PE of 12.5x is not expensive. 

Thoughts

HK market is still rising this week (HSI up 11.2%), while China shares listed in US also rosed too. China Golden Week holidays ends next Monday. I expect inflows of funds from China into equities next week. 

If there is no further stimulus from China, the bull run may hit a wall near end of next week or in the week after. 

I will not be buying further into China / HK equities, as its weightage in my portfolio has risen to a rather high level. In the meantime, I am likely to let my positions run in the bear market. 

China/HK Market Rebound

HK/China market is on fire this week, as 

- China rolled out monetary stimulus package on Tuesday 

- China Poliburo held special meeting to discuss the economy, noting to stop property price from falling, discussing on employment and vowing to achieve 5% growth target

- China provided support to poor elderly and college graduates who were unemployed after 2 years. Also, Shanghai is rolling out $500m RMB of consumption vouchers. 

Over the past week, HSI rose 13.1%; CSI 300 up 15.7%

My stock portfolio

My stock portfolio have benefited from the raging stock prices, up 10% in the past week.

I had bought an small stake in Trip.com this week. Had wanted to buy when prices are at $47 but sold put option instead. With rising price, the put option is unlikely to be exercised. Hence, I bought at higher prices this week. 

Prior to this week:

- Sold partial stake in CNOOC (883.HK) at $18-$19, as oil price declines. Decided to hold just a small stake for diversification / inflation hedging purpose. 

- Sold China Overseas Properties (2669.HK) , as I was uncomfortable with the rising high receivables when compared to its sales. Would have gotten more money, if I held on and sold this week. 

- Bought Glorious Sun (393.HK). It is trading at around $1 but held cash worth $0.66 per share and China bank (such as ICBC, CCB and BOC) shares worth $0.82 per share. In addition, it is also paying out good dividend and buying back its stock. Downside is that its daily trading volume is not a lot. 

- Bought back Plower Bay (1523.HK) stake sold earlier on 5 Aug.

- Bought a small stake in LVMH (MC), as its share price fell below 200-MA (weekly). The stake is small, so that there is room to buy more if share price fell further. However, its share price rose this week, benefitting from rising sentiment in China markets. 

Notes to myself: Chinese low bond yields and share prices.

 Source: https://x.com/JeffWeniger/status/1823125112326926751

On Cash Changes, Samsonite, Noah Holdings and Yuexiu Services

Cash Changes

Have converted a portion of USD in IBKR to SGD, so as to hedge against USD depreciation. Withdrew the amount and deployed them as followed:

- Half in Manulife SavvyEndownment - 3 year guaranteed 3.4% pa

- 30% to subscribe to this month's Singapore Savings Bond which gives 3% pa for 10 years

- 20% to Moomoo Cash Plus (drop to 3.3% in 7-day yield)

The first two deployment helps to lock in 3+% for longer duration. The last deployment is to park the cash in SGD money market fund for future use. 

Samsonite Noah Holdings and Yuexiu  Services

Sold my Samsonite position at around 10+% loss, as I decide to deploy the funds elsewhere. The funds are used to buy Noah Holdings and add on to my position in Yuexiu Services.

Both Noah Holdings and Yuexiu Services are trading below its net cash holdings. 

Koneko Research has a good piece on Noah Holdings: https://konekoresearch.substack.com/p/noah-holdings-chinas-largest-private

Yuexiu Services (6626.HK) is a China SOE providing property management services. Its 1H 2024 results was released yesterday. Revenue and net profit grew by 30% and 12% respectively. Declared interim dividend of $0.10 HKD per share; payout ratio was 50%. 

Earlier in May 2024, it announced the intention to buy back 2% of its shares. In June and July, it bought back around 0.2% of its shares. Given its current market cap below its cash holdings and its actions to share its profits with minority shareholders, I have increased my position in Yuexiu Services. 

On Reits Leverage

 Based on The Edge report, Keppel Pacific Oak US Reit (KORE) management noted that 35% leverage is not viable. Instead, US Reits standard is 40% for decade.

Well, based on Nareit report, US reits leverage  (debt to market assets) are below 35% since 2012. 

Souce: https://www.reit.com/news/blog/market-commentary/us-public-equity-reits-insulated-mortgage-market-turmoil

This implies that 35% leverage is sustainable. 

However, most S-Reits have leverage ratio >35%. More leverage implies more fees and more funding to take on more assets from their sponsors. 

Hongkong's Link Reit is internally managed and had kept its leverage ratio below 25%. (5-year leverage ratios are available at here)

While higher leverage may potentially provide higher DPU (when interest rate is low), I would prefer lower leverage ratio to avoid regrets down the road.