Asia Tea Time: Cup 1 ☕

March 03, 2023 • Estimated Reading Time: 6 minutes

This week, we cover news on China's economy, NIO, and Singapore rent.

Big Picture in Asia

The China economy roars back

Factory activity during February in China rebounded ferociously and had its highest monthly improvement in more than a decade.

Why it’s happening

  • China’s opening up, right? With that comes a massive surge in consumption and activity as things get back to some sort of normal.

  • Remember, China is at least a year to 18 months behind every other country in the world when it comes to “living with Covid”.

Why it matters

  • What happens when people are reminded about 1.4 billion people starting to spend again? Stock markets skyrocket, of course. Hong Kong’s Hang Seng Index surged 4.2% in one day.

  • Tech and property players led the gains as hopes rose that stimulus measures from the Chinese government will be forthcoming.

What’s next?

  • A bunch of old men will gather in Beijing this weekend – aka as the National People’s Congress.

  • It’s usually a rubber-stamping affair…yawn* but there might be some useful tidbits on what the national government wants to focus on.

Tim’s Take:

  • Some China stocks have already run up very strongly. How much of the China reopening story is priced into current stock valuations?

  • Has the geopolitical risk attached to China stocks disappeared? Not by a long shot. Biden and Xi aren’t exactly BFFs and all signs point towards more tensions.

💡

Having said that, the real consumption surge and recovery is likely still ongoing – imagine how many people in China are now out and about compared to November and December 2022, when everyone was first getting Covid.

Company spotlights

NIO losses accelerate in Q4 2022

The Chinese EV maker continues to make a hobby out of burning cash. Its latest quarter (Q4 2022) saw NIO torch more cheddar – to the tune of a RMB 5.8 billion (US$1.1 billion) loss.

Why’s it news?

  • China’s open now. Shouldn’t companies be back to “business as usual”? Well, not in NIO’s case as many of its production facilities were still running below capacity in November and December.

  • Meanwhile, that US$1.1 billion figure was more than double its loss in the year-ago period.

  • Sure, it delivered more vehicles in January and February but its first-quarter guidance was weak sauce.

  • Mr Market wasn’t impressed. NIO shares crashed 11% the day after.

Why it matters?

  • It’s been a running theme with Chinese EV makers. All the support is there – Chinese government subsidies, anyone? – but squeezing out a profit is a lot harder than it looks.

  • NIO shareholders are being asked for patience.

  • That might be in short supply, though. Shares are down by 54% over the past year and are off a whopping 83% from their all-time high (ouch!)

What’s next?

  • Investors will be looking to see if EV delivery numbers keep ramping up, plus can the big EV makers in China stop bleeding red ink?

Tim’s Take:

I’m not a huge fan of these loss-making, cash-burning EV makers in this environment. That’s especially true when global growth is as fragile as Xi Jinping’s ego.

💡

For investors looking for a profitable China EV player, dominant battery and EV giant BYD Co Ltd (SEHK: 1211) is a less speculative choice and – surprise! – it actually makes money.

Funny story of the week

Probably more painful than funny but private home rental rates here in Singapore are still expected to rise 10-15% in 2023 property analysts estimate...no joke!

Massive inflows of capital into Singapore, along with a shortage of supply, has seen many people have to just “grin and bear it” when it comes to rental increases from landlords.

Although with Hong Kong now fully reopen – no more masks, yay! – people who aren’t landlords can hope that some of that excess capital and demand gets thrown back to the Chinese city.