China Investing 101, Series and Guide
- See Also
- === China Investing General Stocks
- === China By Sector
- Consumer, Food
- China Finance
- China Tech,Infra,5G stocks
- China EC stocks
- China Media and Big Tech
- === Chinas's Wealthy Get Richer --- SCR, XFR
- === China's Best Startups By Sector --- SCR, XFR
=== China Investing General Stocks
Risks of Chinese Stocks
1 ADR share of IQ Nasdaq is roughly equivalent to seven ordinary shares
Chinese economy is slowing and that doesn’t help revenue for ad-driven companies.
- Also the all-in high PE are deflating in China - as investors realize the heydays are over for growth
- Most of these often have bulk of public shares out in the west, though their accounting, etc are very opaque
Avoid Entrepreneur Led China stocks, eg Education - Too Much Hype and Little Regulation
Luckin Coffee (LK) massive distortion of sales
Short seller Muddy Waters has pummelled the education stocks
- New Oriental Education (EDU)
- GSX Techedu (GSX)
- TAL Education (TAL)
=== China By Sector
Keys - Consumer Spending to rise
Insurance doing Great Premium Growth on Affulence
In 2019, the premium income of China’s insurance companies amounted to around 4.3 trillion yuan, nearly three times as much as seven years ago.
LFC - life ins ($8.3 - $14.7)
- Profits down -34% q1'2020
- $ Premium growth 13% more than finance peers
Valuation attractive? Year-to-date (YTD), LFC stock is down about 17%. As a result of the decline, its forward P/E and P/S ratios stand at 8.25 and 0.56. Investors may consider buying the dips.
H1'2020 $504 RMB y+13%
- 170,000 employees
- Has a controlling stake in China Life Asset Management Co. Ltd.
CEO - partner XOM on Guyana?
CNOOC is a Chinese oil exploration and production company that has exclusive rights to negotiate offshore production sharing contracts with international oil companies in China. Analyst Matty Zhao says CNOOC management seems confident that it can grow output, despite a lower-priced oil environment. Zhao says CNOOC's Bohai Bay and eastern South China Sea production has a break-even cost of $25 per barrel, an extremely competitive rate in the international market. CNOOC also holds a 25% interest in the Guyana field, which began production in late 2019.
China Tech,Infra,5G stocks
- High Div y6.3%
- fPE=8.3 Stock low for year in FXI -22% YTD
- Little revenue growth +0.1%, Earnings declined -0.5%
- State controlled - 80% owned by China (seen PLA connection) - prevents expansion in rest of world
- 944m subs end'19 - world's largest mobile operator - 4G 750m, 5G 70m
5G a growth - Would need to provide tons of Capex to state favorite Huawei - even if not profitable to do so.
- added 44m 5G customers in Q1'2020
- plans to add 250k 5G base stations by end 2020
H1'2020 390b RMB revenue y+0.1%, NI 56b y-0.5%
- 60% market share in China
- Employees 500k+
China EC stocks
Walmart in China
Competition - Bad problems
- Carrefour supermarkets - sold out its dark,narrow,not popular, others sold to Suning some to WMT
- Darunfa Tesco, Auchan
- Suburb Big box stores failed some (HD,etc) as DIY failed - Less popular as many don't have cars - want to shop locally
- Lots of their stores in China are closed, and the rest are facing fierce competition from local supermarkets.
- usually in the city centers, and so they are cramped and smaller
- Precooked fresh food is cheap - why buy grocery at WMT?
What is working in Retail - ikea worked well - chique fashion!
- No 1 in China supermarkets
- BUT Amazon is now withdrawing from China
- Key tenant in large malls occupying 2-3 floors there, often underground parking, next to office/residential towers - NOT standalone big box
- WMT adapted HEAVILY Cheap goods - live fish by the hundreds even cheaper than wet markets
- Walmart tends towards very cheap things with “reasonable” quality - but Chinese often
- Bad reputation for low quality Cheap garments for every day use.
- Cross border products from USA popular eg almonds and pistachios.
Backs up supply chain
- 12% of all Chinese goods come thru Walmart - MOSTLY Cheap clothes/shoes, etc. Packaged goods
- Over 50% of Walmart USA’s sales are in groceries, almost none of which come from China. Top item is bananas from CentralAm
- bakery, meat, etc. iikely to be frozen chains
- WMT sells a lot of sodas,paper towels, toothpaste, pills, etc., made in North America
- Cheap plastics, toys, electronics items likely to be all from China - but huge markup - so revenue/profits lower in China supplier
- IN PARTICULAR Most of the Walmart branded stuff to be made under contract from China.
- Provides website-creation tools and other e-commerce services - Baozun is sometimes referred to as "the Shopify of China"
- Unlike SHOP, its customers are MOSTLY large companies - RISK as provides services for Western brands aiming to expand their presence in China - on tradewar hurt?
- Shares DOWN 48% from their lifetime high two years ago due to slowing growth and tensions between the U.S. and China.
- Shares could get Delisted
- PARCEL Benefited from a strong e-commerce-driven consumption rebound subsequent to the COVID-19
- 37% growth
- JD,Baba have their own solutions - others need to use ZTO,etc.
HIGH GROWTH - Volume grew 48%
YTD up 28% - PROFIT TAKING RISK 52wk price $19.63 – $38.99
Q2'20 RMB 6.5b y+18%, NI 1.4b y+5.6%
About ZTO Express - logistics UPS/FDX of China
- Controls 20% of express delivery - could reach 25% by 2022
- Q2'20 parcel volume share 21.5% share rose y+1.6%
BABA pb @202
- one of 30 most favored by hedge funds
- largest online retailer in China - base of more than 960 m - 3x US population
- Expansion further to lower-tier cities could even expand its market share lead.
- Provides B2B marketplace for China's factory floor to the world
- As class act, beats local delivery services due to image for high-quality products and unmatched fulfillment infrastructure.
- AI and aggressively investing in research and development
JD x b20 - GARP Amazon of China - less valued than
- 2nd largest online retailer in China after Baba
- JD to control its supply chain — no untrustworthy sellers here
- Strong logistics coverage, brick-and-mortar retail partners and Jingxi app should help to expand its user base in lower-tier cities.
- Innovative Company
- Drones to remote rural auto landing
Scout-like local delivery
SEG: JD has a strong presence in supermarket categories and grocery!
SEG: 7Fresh is an upscale grocery store that opened its first location in Beijing in 2017. These large grocery stores (around 4,000 sqm) focus on fresh foods, including those that Chinese buyers consider rather exclusive, like Spanish Iberic ham, Japanese seafood, and French pastries. And chefs are on-hand to cook the food immediately if desired.
SEG: Apparel: JD's relatively low exposure is a positive, given lingering weakness in the category.
SEG: Auto retail stores low labor JD.com plans to open 1,000 7Fresh stores around China in the next 3-5 years and even more X-Supermarkets. X-Supermarkets are small convenience store-like shops (around 80 sqm) that offer around 500 products. Access is granted through facial recognition and payments are charged automatically to a credit card on file. The only job humans are responsible for in X-Supermarkets is keeping shelves stocked.
1 ADR share of IQ Nasdaq is roughly equivalent to seven ordinary shares
About video-streaming company iQiyi
China Media and Big Tech
Dueling internets seem to emerge
a. OPEN. Original was neutral internet connect everyone. Of course just because Anglos say net is open doesn't mean it is - it is open kimono to NSA/CIA/MI6 - all you can eat buffet for spying - just like the SWIFT system has now been sorely abused by US for its petty sanctions.
Reality is Facebook, Amazon, Google, YouTube, and all other internet application have been actively gathering all of this personal information, and selling it to unknown buyers not just advertisers. If we don't like a company's practice we should stop using their platform and handing them our data. There is no need to violate the core principles of freedom of speech and information.
b. NATIONALISM. Blocking and censorship of sites by nation-states and private balkanized firewalled - eg withn, Russia, Iran, etc. all managed by rulers
c. Aggressive security, hacking and invasion of outside internets, while controlling internal - China is most aggressive in this - get away with murder. This is backed up by its attempt to use its BRI into a 5G control of infrastructure.
- While criticized for targetting ban, Trump is doing nothing new. In China, the foreign equivalents of TikTok and WeChat — video and messaging apps such as YouTube and WhatsApp — have been banned for years.
Firewall of China - Reaction by India/USA
- China has a firewall with extensive blocking, censorship and surveillance that violate internet openness and decency. China keeps a closed and censorial internet economy at home while its products enjoy full access to open markets abroad. China, in furtherance of this vision, bans not only most foreign competitors to its tech businesses but also foreign sources of news, religious instruction and other information, while using the internet to promote state propaganda and engage in foreign electoral interference. Few foreign companies are allowed to reach Chinese citizens with ideas or services, but the world is fully open to China’s online companies. This asymmetry has been a bonanza that has served economic as well as political goals.
Cyber-security an International Phishing and Scam magnet
Multiple high-tech companies have lookes at Tik-Tok software and marvel at how deceptive and far-reaching it is written to gather info and then CONCEAL what it does with it. You have to figure the best software engineers in China worked on this magnet for personal information - literally everything on a person's phone and where it currently is. These include officers directly employed by the red army - PLA.
- Search engine leader of China - high ad revenue
Struggling with stagnating economy in China BIDU stock is off 32% year-to-date and 50% in the past 12 months, this isn’t the time to go bottom fishing. We still need signs that the Chinese consumer is back on track.
Q1'2020 Has lagged its U.S. mega-cap tech peers in recent years. Leung says Baidu has been building its mobile ecosystem, including growing its content creator base and integrating multiple distribution channels to optimize content consumption and engagement. After bottoming in late February, core advertising business has consistently improved each week, a trend Leung says he expects to continue in the second half of 2020. Baidu's streaming video platform, iQiyi, also creates long-term monetization opportunities.
- competitiveLeader China msg,SN,Media,Gaming owns WeChat
SINA - owns Weibo WB
- Struggling with stagnating economy in China The stock is off 16% year-to-date and 30% in the past year. It may experience a bump with the trade deal, but turning the Chinese economy around will be a different deal entirely. It also owns a number of other complementary sites that drive traffic in and between each other.
WB - china's twitter
NetEase is a Chinese gaming and online services company. Leung says NetEase has a strong pipeline of upcoming game releases, including Sky in the third quarter. NetEase is also investing in differentiated content for NetEase Cloud Music by targeting independent musicians and testing electronic music live sessions, singing apps and other potential growth sources. Leung says NetEase's June secondary listing in Hong Kong only generated about 5% dilution for shareholders. He says the company has a pristine balance sheet and a strong portfolio of high-margin, self-developed games.
=== Chinas's Wealthy Get Richer --- SCR, XFR
China Rich from Tech - hurt by US sanctions
Most of China's new billionaires come from the tech industry. But rising tensions between China and the US over Huawei, TikTok and WeChat have also pushed down valuations of Chinese tech stocks.
Zhong Shanshan "lone wolf" - Asia's richest on Water/Vaccine
His net worth $77.8bn, making him the world's 11th richest person according to the Bloomberg Billionaires Index.
Mr Zhong's career has spanned journalism, mushroom farming and healthcare.
Mr Zhong took vaccine-maker Beijing Wantai Biological public in April 2020 listing its shares on the Chinese stock market. Beijing Wantai Biological's shares are up more than 2,000% by Dec end, 2020 and is among those developing a Covid-19 vaccine.
Then in July he took Nongfu Spring the bottled water company, public - listing it in Hong Kong. Since then Nongfu Spring has become one of Hong Kong's hottest listings and its shares have jumped 155% since their debut by Dec end, 2020
Jack Ma - hurt by criticizing China Banking "Regulators"
Jack Ma has seen his wealth drop from a high of $61.7bn in October down to $51.2bn as his Alibaba empire faces increased scrutiny from Chinese regulators. Alibaba is being investigated over claims of monopolistic behaviour while its affiliate Ant Group had its bumper stock market listing blocked in November.
The Ant Group shake-up - Told to stick to payments only not