Asia Tea Time - Cup 35 ☕

November 18, 2023 • Estimated Reading Time: 6 minutes

This week, I cover China's economy, my top ETFs for a broad, diversified stocks and bonds portfolio, and the US-China talks at the APEC summit.

In case you missed it, I also wrote about the Worst Straits Times Index Singapore REIT Over the Past 10 Years. Click here to read the article.

Macro in Asia

China retail sales data expand faster than expected 

China’s retail and industrial data expanded faster than many analysts expected in October, throwing a spanner in the works of the narrative of a slowing Chinese economy.

Retail sales expanded at a 7.6% year-on-year pace last month, beating expectations of 7% growth. That figure was also up from September’s 5.5% increase.

Why it’s happening

  • Worries over the health of the Chinese consumer, and broader investment in the Chinese economy, have seen people talk about a faltering of the “reopening theme”.

  • Data on the China real estate front was still grim - investment into the country’s real estate fell 9.3% during the first 10 months of the year.

  • Within retail sales, it was “sports and other entertainment” that led the growth with a 25.7% year-on-year surge in sales. Alcohol and auto-related sales also did well, both rising double-digit-percentages.

Why it matters

  • China’s economy is kind of a big deal given it’s the second-largest in the world (behind only the US). Consumers still being able to spend is key for its future growth prospects.

  • China is willing to take any good news it can get as fixed asset investment also missed expectations, rising just 2.9% on the year, suggesting there’s a limit to how much infrastructure buildout can be financed in China.

What’s next?

  • China’s property woes have been well-documented. Watch out for any news of bailouts or further developments in the simmering crisis as that will impact the broader economy.

Tim’s Take 

China’s economy has been the focus of a lot of running commentary this year, swinging from excitement over the reopening theme to despair at the underwhelming recovery that unfolded.

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The truth of the matter is that China’s economy is being weighed down by both debt and deflation.

The latter is particularly worrisome as key consumption items, such as pork where China is the world’s largest consumer of the meat, continue to see prices fall.

Indeed the consumer price index (CPI) in China actually DECLINED by 0.2% in October – kind of crazy when you think the rest of the world is trying to get inflation down.

So, for investors, the thought of investing in China right now isn’t the most appetizing prospect. That’s understandable given the geopolitical pressures and the sluggish growth. 

A prime example of that playing out was Alibaba’s decision to abandon its plans to spinoff its cloud computing unit, citing curbs on the export of certain semiconductors to China. Alibaba’s shares duly fell around 10%. 

So, for investors looking at China, it seems that certainty needs to come on three key fronts; the economy, the geopolitical picture, and the domestic regulatory landscape. 

With so much uncertainty on all three, it’s no surprise to see Hong Kong’s Hang Seng Index – a proxy for international investors’ interest in China – down around 14% so far in 2023. 

Tim’s Money Tip of the Week

Focusing on what ETFs we should invest in is an obvious first step when we plan for the long term. However, just as important is how we invest. 

That’s another term for asset allocation. So, what are the two big assets we can buy? Stocks and bonds. It’s that simple and not all that complicated.

Indeed, even a senior strategist at a global bank (JPMorgan) said as much – which is worth a read.

While there are opportunities to add infrastructure, commodities, gold and other types of assets, those could be considered “luxuries” – i.e. unnecessary – when we construct a long-term portfolio.

So, adjusting the proportion of stocks and bonds in your portfolio is really all you need to do. Of course, buying a globally diversified stocks ETF and matching that with a bonds ETF makes the most sense too.

For me, I personally like to diversify across as many securities as possible. In terms of ETFs that you can use to construct a diversified portfolio, there are four I’ve identified.

  1. Vanguard Total Stock Market ETF (NYSE: VTI)

  2. Vanguard Total International Stock ETF (NASDAQ: VXUS)

  3. iShares Core US Aggregate Bond ETF (NYSE: AGG)

  4. iShares Core International Aggregate Bond ETF (NYSE: IAGG)

Across these four, you get exposure to nearly 28,000 stocks and bonds. Given the US is the largest stock and bond market, it makes sense the country has its own allocation.

The bond ETFs invest wholly in investment-grade bonds in the US and elsewhere globally - basically safe and boring stuff.

By buying and holding these four, and adjusting the percentages of each asset class as you get older, you can effectively manage your asset allocation while growing your wealth – all at super low cost.

Story of the Week

There were some positive signs of successful US-China talks at the APEC summit in San Francisco.

That is, of course, until President Biden confirmed in the affirmative after being asked by a reporter whether he still believes that President Xi is a dictator.

While the headlines focused on that, there did appear to be some conciliatory language used by both countries as deals were struck on cooperation surrounding issues like high-level military communications and battling fentanyl production.