Asia Tea Time - Cup 12 ☕

May 19, 2023 • Estimated Reading Time: 7 minutes

This week, I cover news on Japan, Grab, and Xi Jinping.

Macro in Asia

Japanese stocks at an all-time high

Japan’s stock market this week closed at its highest level in 33 years.

Tuesday’s close for the benchmark Topix Index in Japan took it to the highest level since just before the popping of the infamous 1989 stock market and real estate bubble.

Why it’s happening

  • Stock markets in Japan have been on fire in 2023, with gains of over 15% as foreign investors return.

  • In just April alone, foreign investors bought a net 2.1 trillion yen (US$15.4 billion) worth of Japanese stocks. That’s the most since October 2017.

  • Investing guru Warren Buffett’s trip to Japan earlier this year – where he scooped up the shares of Japan’s large trading houses – has helped boost sentiment for Japanese shares.

Why it matters

  • It was a painful three decades or so for Japanese markets as they emerged from one of the biggest speculative bubbles of the 20th century.

  • Interest rate hikes are finally slowing down in the US (yay!) so that means other asset classes, including Japanese stocks, are now becoming more attractive.

What’s next?

  • Does the Japanese rally in stocks have legs? With rising geopolitical tensions between the US and China, the alternative Asian giant has become a lot more attractive.  

Tim’s Take

Japan’s stock market has been notoriously comatose for about two and a half decades after the 1989 bubble burst.

However, Prime Minister Abe’s “Abenomics” – introduced in 2012 – went some way to reinvigorate the Japanese stock market in the past decade. Since late 2012, Japan’s Topix Index has risen over 200%.

It can’t be overstated just how mad asset prices were at the height of the Japan bubble – Tokyo real estate was going for as much as US$139,000 per square foot.

Indeed, the plot of land that the Imperial Palace occupied in central Tokyo was worth more than the entire real estate market of California at the time.

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It now appears that the recent era of deflation in Japan – which has hurt investor sentiment – has finally given way to “positive” inflation. Needless to say, this rally seems to be on a much more stable footing.

Company spotlights

Grab-bing at straws as ride hailer’s growth slows

Singapore-based ride hailer and food delivery firm Grab Holdings (NASDAQ: GRAB) released Q1 2023 results that underwhelmed investors.

Grab’s share price duly fell 15%, the biggest fall since March 2022.

Why’s it news?

  • After an earnings miss from tech peer Sea Ltd (NYSE: SE) the week before, investors were hopeful that Grab could deliver some better news. That was clearly misplaced optimism.

  • Grab’s gross merchandise value (GMV) – a measure of total dollar value transactions on its platform – expanded by just 3% to US$4.96 billion.

  • Good news though, it only lost US$250 million during the quarter – a 43% improvement from the US$435 million of red ink in the year-ago quarter.

Why it matters?

  • After interest rates have climbed, it’s been kind of a big deal that companies show investors they can generate a profit. That’s been the case for high-flying tech stocks, including those found in Southeast Asia.

  • Grab has taken a different tack to Sea and Indonesian rival GoTo in that it hasn’t resorted to mass layoffs…yet.

What’s next?

  • Both Sea and Grab have seen their share prices take a hammering. More will be expected when they report their second-quarter numbers in August.

Tim’s Take

I’ve never really understood the appeal of Grab as a long-term investment. Hasn’t Uber Technologies (NYSE: UBER) already proved that the ride-hailing business model – for the lack of a better word – sucks? It doesn’t make money.

The American ride-hailing and food delivery giant has over 17 times the sales of Grab and is STILL loss making. So, what makes Grab shareholders think that the company can defy the business facts and transition to consistent profitability any time soon?

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With a lack of drivers in Singapore (its most profitable market) and with no government in the region likely to allow Grab to scale to the point where it’s a monopoly provider, it seems like Grab is well on the way to losing more money.

Tim’s money tip of the week

If you’re a saver, you didn’t have many choices for where you parked your cash between 2008-2022.

However, that 14-year dry run started to change when the US Federal Reserve started to raise interest rates at the beginning of last year.

Nowadays, it’s key that any cash savings you might have are parked in a higher-yielding savings account.

In Singapore, the big three of DBS, OCBC and UOB offer investors effective interest rates (EIRs) of up to 5.1% but regionally, brokerages like Interactive Brokers are also offering attractive interest rates on US dollar cash deposits.

It’s worth shopping around to ensure you get the best deal (aka “yield”) for your cash. You deserve it!

Story of the week

If you live in China, woe betide if you make a joke about President Xi or the Chinese army.

Unfortunately for one comedian, that’s exactly what he did this week and – surprise, surprise – that didn’t go down too well with Chinese government officials.

Apparently, performances should not “hurt national feelings”, which is a pretty difficult job to achieve in a stand-up act amid today’s febrile political environment in China.

Readers shouldn’t be surprised if the comedian in question is made to “disappear” by the Chinese government at some point in the next few days or weeks.