Hi Dhruva...Excellent analysis and contra idea. These businesses are no doubt cutting edge and have a great competitive edge. The question that is more pressing is ,what would we can get our hands on as a shareholder. The valuations at these points are no brainer, plus the businesses are growing well. Any favorable regulation towards these by CCP will lead to fast upward movement in the prices. The downside surely is limited.
My question : What would make you change your mind and sell the index?
Hi Chanchal, great question. Whenever people say something is uninvestable it is like music to my ear, mostly it implies valuations should be cheap. Its very hard to really value an an index with 20+ companies specially this one in which many are still in growth cash burning phase so, quantitatively i still can't say that it is for sure trading very cheap as next 10 years of cashflows going to be this much (very hard to predict). Having said that as you mentioned these are very future looking cutting edge tech companies and compared to their US counter parts they are not only growing faster but available at cheaper Mcap/ Rev multiple which is little bit comforting.
Now coming back to your question the first interference by the CCP happened back in 2020 when Jack Ma gave his infamous speech during the IPO of Ant financial and i have been following their actions since then, Given at what state Chinese economy is CCP has a lot other things to worry about rather than regulating their Big tech, I think the whole regulation drama is over there will be some here and there which btw happening in US too as world is realizing some of these monopolistic tech businesses needs to be regulated.
My views will change if i see CCP really wants to destroy their Tech industry , nationalise everything like what Indira Gandhi did during late 1960's ( this this tail risk is there in democracy too).
another thing would make me change my mind if Chinese companies start losing their competitive edge over US companies, They start losing marketshare globally.
I expect next 1-2 year going to hard from earning point of view for these companies and their US counterparts then given the valuation i expect Chinese Tech to bounce back more in terms of earnings and Mcap.
That's correct, its about 8% of portfolio today. I am not increasing it for now, I have plan to go 10% china and if things improve (from political prospective) i'll go 20% (i'll keep looking for signals rather than stock prices). As it did correct 10% in a day then mostly recovered in next two days it will keep on happening here and there.
This video is amazing i have watched it and these risks are very well pointed out and markets have been trying to price it in from year or two now. Deep down i don't feel comfortable owning it but when i weigh down pros and cons i tend to find there is decent but not great risk / reward in this trade that's the reason why just 8% of portfolio..
What i think is over the long run if China going to emerge as the biggest world economy (which is likely) then there will be increase in trade in RNB which may lead to RNB becoming as reserve currency over a very long term for it to happen Chinese will have to open up their financial markets & make it more transparent for others to invest, so those risks mentioned in Video may get eliminated over time most probably.
2ndly in near term - Most Chinese locals were investing in Real estate all along and the bubble has burst, they will move to stock markets & Chinese Gov i think will open it up for their retail investors to move money into stocks as a true ownership. that will be a huge flow of money if and when this happens (remember Chinese spend $250B into tourism every year). Chinese citizen needs their stock markets open up & i think it will happen ( most probably )
If you study how Russian stocks markets evolved over time there are many parallels with that of Chinese.
People often talk about risks when markets are bombed out and reward when markets are bubble up, I try to do opposite hoping i am right more than i am wrong about things and improve.
yes, i am selling , want to buy more of SBI cards and home first.
Also, free up some capital for private investment.
Majorly two reasons -
-- I think expected return from here on will be more in these businesses Vs Chinese Tech ETF ( i am not a big fan of ETF / index fund like to own individual businesses).
and secondly, Those issues around Chinese stock ownership rights are still there - there are not direct ownership due to regulations in China, This always kept me worried.
After than weightage is very low for each of the companies and there is no way to invest in them directly if we like as they are purely HK exchange based.. So , i am thinking i'll work on new idea instead.
Yes, I have looked at them as they are not completely tech index i decided to avoid them, reason being lot of Chinese PSUs are there in these index too. Like the link you shared 30% is tech private companies then lots of companies are Banks, Insurance, Real estate etc run by Chinese Gov.
These kind of companies (traditional businesses) we can buy in India as well and are better run than Chinese. The diversification Chinese Tech give us aren't at all there in India.
Hi Dhruva...Excellent analysis and contra idea. These businesses are no doubt cutting edge and have a great competitive edge. The question that is more pressing is ,what would we can get our hands on as a shareholder. The valuations at these points are no brainer, plus the businesses are growing well. Any favorable regulation towards these by CCP will lead to fast upward movement in the prices. The downside surely is limited.
My question : What would make you change your mind and sell the index?
Hi Chanchal, great question. Whenever people say something is uninvestable it is like music to my ear, mostly it implies valuations should be cheap. Its very hard to really value an an index with 20+ companies specially this one in which many are still in growth cash burning phase so, quantitatively i still can't say that it is for sure trading very cheap as next 10 years of cashflows going to be this much (very hard to predict). Having said that as you mentioned these are very future looking cutting edge tech companies and compared to their US counter parts they are not only growing faster but available at cheaper Mcap/ Rev multiple which is little bit comforting.
Now coming back to your question the first interference by the CCP happened back in 2020 when Jack Ma gave his infamous speech during the IPO of Ant financial and i have been following their actions since then, Given at what state Chinese economy is CCP has a lot other things to worry about rather than regulating their Big tech, I think the whole regulation drama is over there will be some here and there which btw happening in US too as world is realizing some of these monopolistic tech businesses needs to be regulated.
My views will change if i see CCP really wants to destroy their Tech industry , nationalise everything like what Indira Gandhi did during late 1960's ( this this tail risk is there in democracy too).
another thing would make me change my mind if Chinese companies start losing their competitive edge over US companies, They start losing marketshare globally.
I expect next 1-2 year going to hard from earning point of view for these companies and their US counterparts then given the valuation i expect Chinese Tech to bounce back more in terms of earnings and Mcap.
hi dhruva
earlier you mentioned that approx 8% of Pf you had allocated to it.
Would you u still maintain or increase your allocatin, given that the index is cheaper even more approx 10% from your initial buy position.
i had come across an amazing video from PPFAS , i hope you had watched it already, outlying the risks of china
https://www.youtube.com/watch?v=OkKjLDAeWRo&t=4681s&ab_channel=PPFASMutualFund
im sure you must have seen it.
Hi Grace,
That's correct, its about 8% of portfolio today. I am not increasing it for now, I have plan to go 10% china and if things improve (from political prospective) i'll go 20% (i'll keep looking for signals rather than stock prices). As it did correct 10% in a day then mostly recovered in next two days it will keep on happening here and there.
This video is amazing i have watched it and these risks are very well pointed out and markets have been trying to price it in from year or two now. Deep down i don't feel comfortable owning it but when i weigh down pros and cons i tend to find there is decent but not great risk / reward in this trade that's the reason why just 8% of portfolio..
What i think is over the long run if China going to emerge as the biggest world economy (which is likely) then there will be increase in trade in RNB which may lead to RNB becoming as reserve currency over a very long term for it to happen Chinese will have to open up their financial markets & make it more transparent for others to invest, so those risks mentioned in Video may get eliminated over time most probably.
2ndly in near term - Most Chinese locals were investing in Real estate all along and the bubble has burst, they will move to stock markets & Chinese Gov i think will open it up for their retail investors to move money into stocks as a true ownership. that will be a huge flow of money if and when this happens (remember Chinese spend $250B into tourism every year). Chinese citizen needs their stock markets open up & i think it will happen ( most probably )
If you study how Russian stocks markets evolved over time there are many parallels with that of Chinese.
People often talk about risks when markets are bombed out and reward when markets are bubble up, I try to do opposite hoping i am right more than i am wrong about things and improve.
hi dhruva, saw that ur planning to close out positions from HangSeng?
what the rational? (too much optimish around it now ? )
yes, i am selling , want to buy more of SBI cards and home first.
Also, free up some capital for private investment.
Majorly two reasons -
-- I think expected return from here on will be more in these businesses Vs Chinese Tech ETF ( i am not a big fan of ETF / index fund like to own individual businesses).
and secondly, Those issues around Chinese stock ownership rights are still there - there are not direct ownership due to regulations in China, This always kept me worried.
Thanks Dhrew for the well researched topic again. You covered very detailed. Please post other companies as well in coming blogs.
Hi Kanagaraj,
After than weightage is very low for each of the companies and there is no way to invest in them directly if we like as they are purely HK exchange based.. So , i am thinking i'll work on new idea instead.
would be great to hear your views on
https://www.edelweissmf.com/types-of-mutual-funds/international-fund/edelweiss-greater-china-equity-offshore-fund
EDEL greater china fund also
Yes, I have looked at them as they are not completely tech index i decided to avoid them, reason being lot of Chinese PSUs are there in these index too. Like the link you shared 30% is tech private companies then lots of companies are Banks, Insurance, Real estate etc run by Chinese Gov.
These kind of companies (traditional businesses) we can buy in India as well and are better run than Chinese. The diversification Chinese Tech give us aren't at all there in India.
super article,
approx how much % of your PF would u bet on MAHSTech index ?
10% for now and i would be raising it to 20% if i get more in flow of money :-)