Asia Tea Time - Cup 24 ☕

August 25, 2023 • Estimated Reading Time: 7 minutes

This week, I cover news on the Qatar sovereign wealth fund, Grab, and my tips for alternative investments.

Macro in Asia

Qatar sovereign wealth fund to invest US$1 billion into India’s Reliance

The Qatari sovereign wealth fund – the Qatar Investment Authority (QIA) – is set to invest US$1 billion into India’s Reliance Retail Ventures, in exchange for a 0.99% stake.

That values the Indian shopping company at a whopping US$100 billion.

Why it’s happening

  • India’s economy is kind of a big deal, growing at 7.2% in its fiscal 2022-2023 – making it the third-largest in Asia (behind China and Japan).

  • Projections are for India’s economy to more than double, from US$3.5 trillion in GDP in 2022 to US$7.3 trillion by 2030.

  • The consumer story is compelling in India given the massive, and relatively nascent, retail market. India’s middle class is expected to more than double to 63% of households by 2047 (from the current 31%).

Why it matters

  • India’s attracting inflows from sovereign wealth funds from various regions, with Singapore’s own sovereign fund (GIC) having purchased a small 1.22% stake in Reliance Retail back in October 2020.

  • India’s economy, as well as its stock market, have been booming. This latest deal is just another a sign that many investors see India as the next growth story in Asia.

What’s next?

  • Investors will need to watch whether India’s growth narrative can be matched by the numbers in the consuming class in the years ahead.

Tim’s Take

India has well and truly taken over China’s mantle as the Asian growth story of this decade.

The diametrically-opposed narratives have been stark – in the press you see that India is booming and China’s stocks are crashing.

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However, with many things in investing, it’s much more nuanced. India is also benefitting from the favourable geopolitical backdrop – with tensions between the US and China seemingly only getting worse – which has proved to be an extra tailwind for its economy.There’s still a lot of work to be done in terms of infrastructure buildout and cutting red tape for businesses, but India’s growth story is certainly on the right track.

Company spotlights

Grab still in the red with US$135 million net loss for Q2 2023

Grab Holdings Ltd (NASDAQ: GRAB) managed to narrow its Q2 2023 loss to just US$135 million, from US$547 million in Q2 2022.

Grab shares ended the week up around 14%.

Why’s it news?

  • Grab has been burning money like there’s no tomorrow so news that it could reach “adjusted break-even” as soon as Q3 of this year was met with optimism.

  • Revenue for Grab rose 77% year-on-year in Q2 2023, reaching US$567 million, as fears about slower consumer spending in ASEAN countries proved unfounded.

Why it matters?

  • Tech companies in Southeast Asia have been struggling to make money for years now. Grab – along with its fellow Singapore-headquartered/US-listed peer Sea Ltd (NYSE: SE) – are looking for new avenues of growth while also trying to make a profit.

  • Grab is moving into various new areas such as online banking in Singapore, advertising and has also announced its plans to acquire a Singapore taxi company.

What’s next?

  • The post-Covid consumer rebound still seems to be going strong in Southeast Asia but watch out for Grab’s “adjusted” numbers in future as these can mask whether the company is producing authentic cash flows.

Tim’s Take

Grab shareholders have had a rough ride ever since it listed, with its current share price over 70% below where it ended its first trading day in late 2020.

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Stock-based compensation (SBC), while having come down in recent quarters, is still a decent chunk of expenses for Grab – coming in at US$65 million in Q2 2023.A lot of high-growth tech companies issue shares as rewards to employees, which works out great, granted your share price is rising.With a lower, or depressed, share price, issuing more shares to employees in the form of SBC just dilutes shareholders even further.

It remains to be seen whether Grab can be consistently profitable in the ride-hailing space in Southeast Asia.

Tim’s money tip of the week

In this environment, particularly in 2022, investors have been hurt by holding both stocks and bonds.

So, beyond these two traditional asset classes, what are the options? Typically, anything outside of these two is termed “alternative investments”, which can mean anything from private equity (PE) to gold.

In terms of “alternatives”, from an individual investor perspective, they’re an asset class that acts differently to both stocks and bonds.

For example, gold – as a physical asset – is judged to be a valuable commodity that can act as a hedge against inflation and as a defensive asset in times of uncertainty.

But from an allocation perspective, we shouldn’t really have more than 5-10% of exposure in our portfolio to alternatives.

Story of the week

Big news in the past couple of weeks has focused on the US$1 billion money laundering case in Singapore, where a bunch of individuals were arrested.

Massive stacks of cash, as well as their multi-million dollar properties, were also seized.

This week, Singapore authorities have asked 10 banks to provide documents as this money laundering investigation widens.

No doubt what was seized is only the tip of the iceberg in terms of “dirty money” being laundered in Singapore.