Asia Tea Time - Cup 63 ☕

This week I talk a new China ETF focused on state-owned enterprises and how buying “own brand” goods can save you a pretty penny. 

Macro in Asia

New Chinese SOE ETF launches in Hong Kong

An ETF, that tracks an index of large, listed Chinese state-owned enterprises (SOEs), recently launched in Hong Kong.

The Bosera China Reform Hong Kong Central-SOEs High Dividend Yield Index ETF is managed by Bosera Asset Management International and was listed in Hong Kong on 10 July.  

Why it’s happening

• ETF launches generally tap into a theme that’s “hot” and in China, being invested in large SOE companies has been a favourite among investors in recent times.

• That’s because they definitely won’t be disrupted (Big Brother aka the Chinese government protects them) and they also pay sweet dividends 

Why it matters

• It’s a major shift from the pre-pandemic decade, when the 2010s saw large Chinese technology stocks like Tencent and Alibaba dominate investor interest.

• How investors view China has evolved. Instead of focusing on investing in innovative, private companies, if you do want exposure to China it seems the best way to get it is now via sleepy, state-owned giants.

What’s next?

• Investors should monitor if this shift is indeed a permanent fixture of the investment scene for those of us interested in buying Chinese stocks.

Tim’s Take 

China now is a “nice to have” than a “must have” in well-diversified investment portfolios.

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That’s mainly due to the Chinese government cutting down to size the country’s tech giants in 2021. 

As a result, a lot of investors’ favourite companies in the decade before have had a tough time of it in recent years. The most obvious example of that is Alibaba and its outspoken founder Jack Ma.

But in terms of what seems to be working for those investors still interested in China is the prospect of dividend-paying, high-yielding SOEs.

Given President Xi has seemingly pivoted towards championing state intervention, many investors are now enamoured with these inefficient, bloated companies. So it’s no surprise we’ve seen an ETF launch on the back of this trend.

That love for SOEs has through in share price performance as well. For example, PetroChina – which yields close to 7% – has seen Hong Kong-listed shares rise over 21% in the past 12 months. 

Compare that to Alibaba’s Hong Kong-listed shares, which are down around 20% in the past 12 months, and it becomes clear that SOEs are “in” and tech giants are “out” in China.

If you can get paid a decent dividend and know that the company you’re invested in isn’t going to upset the Chinese government, it seems like a “win-win”. 

That’s certainly how investors are viewing this new post-pandemic China, where growth is slowing and state intervention in private business is ramping up. 

Whether that’s good longer term for this new SOE ETF is another matter.

Tim's money tip of the week

When we go into supermarkets, we’re usually bombarded with choice. It’s no wonder that German budget retail giants ALDI and Lidl have made such a name for themselves through the economics of less choice. They’ve also been big advocates of “own brand” goods.

The same applies in Asia, too. When we do our weekly/daily shop to a supermarket, we should be on the lookout to pick up supermarkets’ own-brand goods.

That’s because a brand that’s well recognised can typically accompany a huge markup on a good that doesn’t really deserve one.

So, think about goods that you really are willing to pay for. If it’s cooking oil, cookies, or standard peanut butter, can an own-brand do the job without you noticing?

If so, which is likely in many household cases, then you’ll be saving a decent amount of moolah over time.