Asia Tea Time - Cup 18 ☕

July 07, 2023 • Estimated Reading Time: 7 minutes

This week, I cover news on Singapore stocks, Toyota, and Meta's "Threads".

Macro in Asia

Singapore stocks fall as investors rotate into North Asia

Singapore stocks hit a near eight-month low this week as investors rotated out of the Southeast Asian market into more attractive North Asian markets, like Japan and South Korea.

Why it’s happening

  • Singapore’s stock market is defined by its big three banks’ (DBS, UOB and OCBC) shares more than anything else.

  • With the US Federal Reserve looking like it’ll be done with interest rate hikes by the second half of 2023, concerns are surfacing about where banks can generate growth.

  • Remember that Japan’s stock market has been on an absolute tear (mainly because it’s not China) while South Korea’s is benefitting from AI-related hype given its semiconductor ecosystem.

Why it matters

  • Singapore has been riding high as a city state – nabbing some blockbuster concerts by Coldplay and Taylor Swift in 2024 – but there are worries about slowing growth.

  • While it has been a huge beneficiary of post-Covid travel and capital flows, Singapore’s stock market is still a relative minnow versus other Asian stock market hubs like Hong Kong and Tokyo.

What’s next?

  • Investors will be watching for any hints of the interest rate path in the US as it impacts all Asian stock markets and companies’ ability to raise/borrow capital.

Tim's Take

  • Singapore’s stock market has been weighed down this year as its relative outperformance in 2022 – it delivered a positive total return of 8.4% last year when most other global stock markets fell.

  • But remember that the Straits Times Index – the benchmark gauge of Singapore’s stock market – has over half of its exposure to the Big Three banks in Singapore.

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While they posted solid gains in 2022 on hopes that fast-rising interest rates would benefit their bottom lines (which it did), that effect is starting to fade now that rate hikes are slowing.

Even worse, loan growth at the big banks is also slowing and the cost of attracting deposits is rising. That means less money for the bank and its shareholders.

Unsurprisingly, investors are looking for growth again in Asia and the technology space (particularly AI) is where the party’s at.

Company Spotlight

Toyota unveils battery ambitions for EVs after breakthrough

The world’s second-largest automaker – Toyota Motor Corp (TYO: 7203) – unveiled its lofty ambition to halve the size, cost and weight of its batteries for electric vehicles (EVs) after a breakthrough in its battery technology.

Why’s it news?

  • Toyota has been a notable laggard among the world’s biggest auto firms when it comes to “going 100% electric” with its vehicles.

  • While it only trails Volkswagen (in terms of global sales), Toyota’s EV production has been woefully low. In 2022 it sold just shy of 25,000 fully-electric vehicles worldwide compared to 2.6 million of its hybrid-electric vehicles in the same period.

Why it matters

  • As one of the world’s biggest automakers, it has a massive impact on the electric transition for the world’s fleet of cars.

  • While Toyota announced plans back in 2021 to invest up to US$35 billion in EV development, research firm Gartner estimates that by the 2030s over 50% of its sales will still be of petrol-burning engine cars.

What’s next?

  • Tesla and large Chinese competitors like NIO, Xpeng and BYD have taken the global lead on producing all-electric vehicles. Investors will be watching Toyota closely to see how it develops its all-electric models.

Tim's Take

  • Toyota has been found wanting in the space of electric vehicles (EVs) as Tesla and its Chinese competitors gobbled up global market share.

  • BYD is the best example of this. Under two years ago, the Chinese auto manufacturer had around 7% market share of global EVs. By Q1 2023, this had jumped to 21%.

  • It’s evident of a willingness among Chinese brands to experiment and invest heavily into the EV space early on, whereas Toyota dawdled.

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The chasm in numbers means Toyota shares have also badly trailed its competitors. Toyota’s Tokyo-listed shares are up 58% over the past five years while BYD shares in Hong Kong have soared 430% and Tesla stock is up 1,290% over the same timeframe.

Tim’s money tip of the week

When we start investing, we rarely think about portfolio allocation across both assets and geographies.

But that’s exactly what we should build out as we look to diversify. For example, someone who is 25 will have a different asset allocation in their portfolio versus someone who is 55.

The closer you are to retirement, the more the conventional wisdom says to hold bonds. That’s because bonds traditionally go up when stocks go down – although 2022 was a rare exception when both declined.

Even so, if you’re thinking about building out a portfolio with exchange-traded funds (ETFs), it’s worth also looking into allocating into a global bond/US bond ETF such as the Vanguard Total Bond Market ETF (NYSE: BND) or the Vanguard Total World Bond ETF (NYSE: BNDW).

Buying a bond ETF is a lot easier than actually buying individual bonds as the bond market isn’t accessible for everyday investors like us.

Story of the week

It was amusing to see Mark Zuckerberg and Elon Musk’s rivalry get taken to the next level with Meta Platform’s release of the Twitter-like “Threads”.

Anyone with an Instagram account will be able to open an associated Threads account.

Zuckerberg claimed the service had signed up 30 million users within a few days. While it’s still far short of Twitter’s user base of 450 million, it could be a threat over time.

The question is whether we need yet another social media platform owned by Meta.