Asia Tea Time - Cup 16 ☕

This week, I cover news on Asian investment products that exclude China, Singapore Airlines, and the Hong Kong Monetary Authority.

Macro in Asia

Institutional investors increasingly look for Asia Pacific ex-China growth

According to the Financial Times, global fund managers are increasingly on the lookout for Asian investment products that exclude China.

This has been spurred by the worsening geopolitical tensions between the US and China.

Why it’s happening

• The US and China aren’t exactly tight right now (think spying balloons and semiconductor bans) so it’s no surprise investors are on edge.

• Besides that, China’s economy is also slowing – making the investment case stronger for other faster-growing Asian economies.

Why it matters

• China’s onshore stock markets (Shanghai and Shenzhen) and Hong Kong are among the largest in Asia. But they’ve been pretty poor performers so far in 2023 as China’s post-Covid growth path falters

• Markets like India, Japan, South Korea and Southeast Asia are naturally attracting these alternative fund flows.

What’s next?

• Investors will no doubt be watching closely any other “national security” concerns that both the US and China have. More importantly, how will those concerns play out in sanctions, restrictions or crackdowns?

Tim’s Take

There’s been a lot of “Asia ex-China” talk in investment circles but, besides the geopolitical concerns, it actually makes sense from an investment perspective.

The “Asia ex-Japan” angle has been around for three decades and China’s economy is now the second-largest in the world – meaning it merits a dedicated mandate.

By doing that, investors looking to Asia can decide whether they want exposure to China or not.

It’s no coincidence that recent months have seen Japan’s market hit a 30-year high, South Korea’s enter bull market territory and India’s reach a new all-time closing high.

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Money that may have otherwise flowed to China is realizing that these tensions aren’t going anywhere, perhaps indicating that money now in other markets isn’t going back to China.

One other interesting facet of this is that China analysts and strategists are now increasingly bullish on state-owned enterprise (SOE) stocks – a sign of how desperate the Chinese stock market has become to grasp at any sign of optimism.

Company Spotlight

Singapore Airlines stock snaps 12-day winning streak

Singapore Airlines Ltd (SGX: C6L), one of Asia’s leading airlines, saw its share price break an incredible 12-day winning streak.

Its shares gained over 20% during that period as investors remain bullish on post-pandemic travel and pent-up demand.

Why’s it news?

• Airlines had a horrific time during the Covid-19 pandemic and their stocks fared even worse – no surprise since people couldn’t travel.

• But the rebound in travel has seen record demand for Singapore Airlines flights and has also seen the airline’s stock outperforming its peers.

• Singapore Airlines had to refute a media story claiming it was planning to raise its stake in Air India.

Why it matters?

• People want to travel again and Singapore Airlines has earned a reputation as being one of the best airlines in the world.

• Airlines ticket prices, though, have been insane. Singapore Airlines prices have seen sharp increases, meaning the company could flex and post a record annual profit of S$2.16 billion recently.

What’s next?

• How long can plane tickets stay elevated? And is it sustainable? Those are two key questions that travellers and airline analysts are asking.

Tim’s Take

Singapore Airlines deservedly picks up many of the accolades for “world’s best airline”.

The airline has carved out a niche in terms of its reliability and premium service in a world where airlines are generally known for not having any. But that doesn’t make it a great business to own.

The funny thing is that the stock is still over 40% off its all-time high, reached back in 2000. Isn’t that kind of a sign that airline stocks just don’t make great investments?

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Nothing much has really changed with airlines’ business models since then. It’s just that people want to travel again, in huge numbers.

Geopolitically, there are some tailwinds for Singapore Airlines given the prolonged closure of Hong Kong but it’s nothing that will meaningfully sustain over the long term.

Tim’s money tip of the week

When we think about investing, a lot of what comes into play is natural human emotion.

One such area is called “anchoring”, where we anchor ourselves to a price that we’ve paid for a stock.

What happens then is that we aren’t able to add more to that position if it goes up in price because it will be like paying more for exactly the same thing.

Which essentially is exactly what you’d be doing. But that’s the whole point of investing.

If someone had bought Apple stock in 2006 – just before the iPhone launched – and then didn’t add to it for the next 17 years because they were “anchored” to that price they paid, imagine how much in potential profits they would have foregone?

So, when we think about investing in individual stocks, it’s important to remember that “winners tend to keep winning”.

In that sense, we should always be looking to add to our winners because it’s most likely that the business is continuing to perform well for a reason.

Story of the week

An interesting report from the FT this week claimed that Hong Kong banks HSBC and Standard Chartered are under pressure from Hong Kong’s banking regulator to take on crypto exchanges as clients.

The Hong Kong Monetary Authority (HKMA) apparently questioned the two banks – along with Bank of China – about why they weren’t accepting crypto exchanges as clients.

It shines a spotlight on the contradictions of trying to turn Hong Kong into a global crypto hub while ensuring banks can monitor these platforms and avoid them being used to money laundering.

With recent enforcement actions coming from the US regulator, it makes for exciting (or potentially scary) times for banks in Hong Kong.