Have We Hit The Top?

[Luke]

I am betting on my three favourite horses, tencent/prx, pdd and hang lung group. 

 

I think if you like china retail you should skip everything and go straight to PDD. I dont want to own the real shitters like toy producer or other commodities, while they are cheap i dont think they are compounders for the longterm. If you like tech there is quite some but its very hard to understand, keep up to date and predict so the road for me leads only to tencent. If you like luxury then you will like hang lung. 

 

Please let me know if you have other good ideas, as always. 

Edited September 26, 2024 by Luke

[Luke]

24 minutes ago, Gregmal said:

YUMC has been turning it around. Own a small bit of that. 

yeah, i have read the write up on this one but i am not sure how much chinese will start to dislike us-food-franchises with the increasing nationalism. its what put me off here. 

[Gregmal]

This could actually being a pretty big inflection when you consider the macro trends. US is and will possibly become more and more hostile to businesses, while trading at lets call it 20-25x. The FTC is an abomination, press is bigoted beyond belief, and politicians (both sides) enjoy scapegoating China, Russia, Middle East for everything.

 

Meanwhile China is demonstrating it will support and be favorable to its capital markets, support the general prosperity of the middle class, and take necessary action to root out bad actors; while many of the China based companies trade at sub 10-15x. 

Edited September 26, 2024 by Gregmal

[Paarslaars]

1 hour ago, Dinar said:

What are people's favorite Chinese stocks to buy now and why?  Thank you.

PDD and JD leaps ftw

[Munger_Disciple]

I find it odd that oil is sucking wind while everyone thinks China is back. There is something wrong with this picture. 

[Dinar]

39 minutes ago, Munger_Disciple said:

I find it odd that oil is sucking wind while everyone thinks China is back. There is something wrong with this picture. 

Saudi Arabia announced this morning that they may be willing to accept a lower oil price in order to defend its market share

[Dinar]

3 hours ago, Gregmal said:

Id also say LVMH and DEO benefit a good bit too. 

Agree on LVMH, not sure about DEO - cognac would be better play (Remy).   Not a fan of Diageo in general.

[Munger_Disciple]

14 minutes ago, Dinar said:

Saudi Arabia announced this morning that they may be willing to accept a lower oil price in order to defend its market share

I saw that but why would the Saudis do that if they expect more normal demand from China going forward?

[hasilp89]

3 hours ago, Gregmal said:

This could actually being a pretty big inflection when you consider the macro trends. US is and will possibly become more and more hostile to businesses, while trading at lets call it 20-25x. The FTC is an abomination, press is bigoted beyond belief, and politicians (both sides) enjoy scapegoating China, Russia, Middle East for everything.

 

Meanwhile China is demonstrating it will support and be favorable to its capital markets, support the general prosperity of the middle class, and take necessary action to root out bad actors; while many of the China based companies trade at sub 10-15x. 

you’ve got communist china lending money for corporate buybacks and capitalist USA taxing buybacks and campaigning on unrealized capital gains taxes. Does make me think.

[Dinar]

28 minutes ago, Munger_Disciple said:

I saw that but why would the Saudis do that if they expect more normal demand from China going forward?

Lower oil prices hurt Iran, an arch enemy!

[Luke]

27 minutes ago, hasilp89 said:

you’ve got communist china lending money for corporate buybacks and capitalist USA taxing buybacks and campaigning on unrealized capital gains taxes. Does make me think.

[Munger_Disciple]

2 hours ago, Dinar said:

Lower oil prices hurt Iran, an arch enemy!

 

But that's nothing new.

[Paarslaars]

On 9/26/2024 at 6:00 PM, Luke said:

I am betting on my three favourite horses, tencent/prx, pdd and hang lung group. 

 

I think if you like china retail you should skip everything and go straight to PDD. I dont want to own the real shitters like toy producer or other commodities, while they are cheap i dont think they are compounders for the longterm. If you like tech there is quite some but its very hard to understand, keep up to date and predict so the road for me leads only to tencent. If you like luxury then you will like hang lung. 

 

Please let me know if you have other good ideas, as always. 

 

What's your thought on KE holdings?

[Luke]

11 hours ago, Paarslaars said:

What's your thought on KE holdings?

Never looked at them! 

[Ver]

On 9/26/2024 at 6:00 AM, Luke said:

I am betting on my three favourite horses, tencent/prx, pdd and hang lung group. 

 

I think if you like china retail you should skip everything and go straight to PDD. I dont want to own the real shitters like toy producer or other commodities, while they are cheap i dont think they are compounders for the longterm. If you like tech there is quite some but its very hard to understand, keep up to date and predict so the road for me leads only to tencent. If you like luxury then you will like hang lung. 

 

Please let me know if you have other good ideas, as always. 

Indeed, if you can understand PDD then why bother with anything else?

 

Otherwise Maotai is very reliable along with Tencent. Both are simpler to understand.

[UK]

[Milu]

1 hour ago, UK said:

Interesting chart, I'm very surprised how low the Forward P/E was in 06/07, considering this was the peak of the market before the credit crisis. I do always find the forward P/E a tricky metric to assess as it's essentially using a guess what earnings are going to be for the next year, and we know how accurate humans are with guesses.

 

It would be interesting to see a 20 year table comparing the forward estimate of S&P earnings with the actual earnings for that year. I wonder what the average margin for error is and what have been the largest errors? If it's typically within plus or minus 10% then it would be a useful metric, if it's been off by 20% plus then less so.

 

If anybody has that info, it would be great to see.

[UK]

22 minutes ago, Milu said:

Interesting chart, I'm very surprised how low the Forward P/E was in 06/07, considering this was the peak of the market before the credit crisis. I do always find the forward P/E a tricky metric to assess as it's essentially using a guess what earnings are going to be for the next year, and we know how accurate humans are with guesses.

 

It would be interesting to see a 20 year table comparing the forward estimate of S&P earnings with the actual earnings for that year. I wonder what the average margin for error is and what have been the largest errors? If it's typically within plus or minus 10% then it would be a useful metric, if it's been off by 20% plus then less so.

 

If anybody has that info, it would be great to see.

 

This chart is from here: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/

 

I agree forward PE is tricky, but it is somewhat normalized and I personally consider it an optimistic / can not get better view as of today. Though perhaps there are times when forward looking estimates later turn out to be to pessimistic.

 

I am not sure this chart says very much about the markets future, perhaps more so about the level of the long term returns one could expect from current levels and at what level we are flying currently in case something big and unexpected happens, but in no way I see this as some kind of a timing tool, especially for the near term.

[Dinar]

4 hours ago, UK said:

 

This chart is from here: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/

 

I agree forward PE is tricky, but it is somewhat normalized and I personally consider it an optimistic / can not get better view as of today. Though perhaps there are times when forward looking estimates later turn out to be to pessimistic.

 

I am not sure this chart says very much about the markets future, perhaps more so about the level of the long term returns one could expect from current levels and at what level we are flying currently in case something big and unexpected happens, but in no way I see this as some kind of a timing tool, especially for the near term.

What also matters is the level of interest rates.  I'd bet that if you graphed the spread between earnings yield vs TIPS or real yield, that spread would show that market is not expensive or even cheap relative to bonds. 

[UK]

3 minutes ago, Dinar said:

What also matters is the level of interest rates.  I'd bet that if you graphed the spread between earnings yield vs TIPS or real yield, that spread would show that market is not expensive or even cheap relative to bonds. 

+1

[mattee2264]

Interesting thing though is if you look at that chart selling when forward PE ratios rose above 20x you'd have been well served to lighten up on stocks and had an opportunity within a year or two to get back into the market at close to an average valuation. And worth noting that over the last 30 years we've been in a pretty low interest rate environment which will have had a benefit to average forward valuations.

 

Question is whether this time is different. Market does seem to be anticipating fast growth of Big Tech earnings both over the next 12m but also for many years after that. And Big Tech forward PE ratios are clearly well above the average for the market. 

 

 

[Junior R]

2 hours ago, mattee2264 said:

Interesting thing though is if you look at that chart selling when forward PE ratios rose above 20x you'd have been well served to lighten up on stocks and had an opportunity within a year or two to get back into the market at close to an average valuation. And worth noting that over the last 30 years we've been in a pretty low interest rate environment which will have had a benefit to average forward valuations.

 

Question is whether this time is different. Market does seem to be anticipating fast growth of Big Tech earnings both over the next 12m but also for many years after that. And Big Tech forward PE ratios are clearly well above the average for the market. 

 

 

I think real test will be the upcoming earnings..many stocks have high expectations 

[mattee2264]

Agreed. Although if the Fed is hell bent on easing then it has a pretty big runway to offset any disappointments in relation to earnings (both corporate and GDP). 

 

 

[ArminvanBuyout]

Interesting read on US outperformance

https://www.bridgewater.com/_document/us-exceptionalism-drivers-of-equity-outperformance-and-whats-needed-for-a-repeat?id=00000192-48f2-d1cc-ab9b-fbf6d9e30001

[mattee2264]

Short term at least I think US outperformance seems pretty darn likely.

 

US economy continues to show resilience (although I think a lot of it is due to the trillion plus dollar deficits and government hiring spree) but the Fed seems determined to aggressively cut interest rates. I imagine all the AI capex is also probably having some multiplier effects in the same way the US economy accelerated during the dot com bubble. 

 

And a bubble cannot fully form without the impetus of easy credit and that's been the missing ingredient so far in the AI bubble as rising interest rates have been a headwind. 

 

I'm an AI sceptic but it is the stuff that bubbles are made of: a revolutionary technology that promises to  boost productivity, cut costs, increase margins and extend the growth runway of the tech mega-caps. Big Tech CEOs feel forced to invest huge amounts which is propelling NVIDIA to the stratosphere and corporate CEOs will also feel forced to invest in whatever products Big Tech put out because they know all their competitors will be doing so and everyone likes to try out a new technology and the idea of automating mundane tasks allowing companies to lay off lots of workers is an easy sell. 

 

The problems probably arise a few years down the line if expending more and more computing power fails to bring about further advances in the technology and the AI products fail to deliver the hoped for benefits or the costs outweigh the benefits which would make it difficult for Big Tech to achieve payback on their huge investments let alone a return and if they then cut back on their spending that will hurt the semiconductor companies who are minting money at the moment. 

Edited October 14, 2024 by mattee2264