Asia Tea Time - Cup 11 ☕
This week, I cover news on Indonesia, JD.com, and Warren Buffett.
Macro in Asia
Indonesia becomes the world’s second-biggest producer of cobalt
Indonesia became the world’s second-largest cobalt supplier in 2022, accounting for about 5% of global production.
The Cobalt Institute said the country has the potential to increase cobalt production by a factor of 10 by 2030.
Why it’s happening
- With the global geopolitical picture more tense than ever, where we get our metals and minerals from is becoming supremely important.
- Indonesia overtook established cobalt producers like Australia and the Philippines – who doesn’t like boasting rights over regional neighbours?
- Indonesia produced 9,500 tonnes of the metal in 2022, up big from virtually nothing before 2021.
Why it matters
- Cobalt matters because it’s a key ingredient for rechargeable lithium-ion batteries that go into all sorts of electric vehicles (EVs).
- The Democratic Republic of Congo (DRC) actually produces over 70% of the world’s output so it kind of has a monopoly on production.
- The only issue with central African states is that they tend to not be that stable. Worries in the West focus on the fact that over 80% of the DRC's mines are owned by Chinese firms.
- Diversifying this concentrated supply is going to benefit global producers of EVs.
What’s next?
- It’s clearly going to be one of the many future strategic focal points between China and the West.
- In December at the US-Africa Leaders Summit, US President Biden pledged investment of up to US$55 billion in Africa over the next three years. It will be interesting to see where that gets them.
Tim’s Take
- Being a consistent, and growing, cobalt producer could see Indonesia make headway in its plans to become a key player in EV supply chains.
- That aspiration has already been mentioned in various economic plans drafted under current Indonesian President Joko Widodo.
- He also met with Elon Musk back in 2022, hoping to persuade Tesla (NASDAQ: TSLA) to set up production there.
For example, copper is another metal that plays a massive role in everything from EVs to wind and solar generation.
Yet Chile and Peru account for over 40% of global supply of the red metal and new copper mines can take anywhere from 15-20 years to go from discovery to commercial production.
Company spotlight
JD.com reports slowest ever pace of revenue growth
Chinese e-commerce giant JD.com (SEHK: 9618) (NASDAQ: JD) reported its Q1 2023 earnings, which saw revenue grow just 1.4% from the same period last year to RMB 243 billion (US$35 billion).
That was the slowest revenue growth the company has ever recorded but shares ended the day up 7%.
Why’s it news?
- After the reopening of China’s economy, it was likely that online commerce would take a hit as people went back to shopping in person.
- JD.com CEO Xu Lei is retiring after just over a year in the role – he’ll be replaced by CFO Sandy Xu.
- It’s the first big tech player in China to report first-quarter earnings so perhaps there are better (or at least not worse) times ahead for the sector?
Why it matters
- JD is the number two online retailer in China so it gives you a pretty solid picture of how e-commerce is faring.
- Can the fiercely competitive e-commerce sector actually come out the other side of this Covid-induced slump and get back to growth? That’s the question on everyone’s minds.
What’s next?
- Both Alibaba (SEHK: 9988) (NYSE: BABA) and Tencent (SEHK: 700) will report their earnings next Thursday (18 May) so keep an eye out for how they’re responding to post-pandemic normalcy in China.
- JD.com also announced back in March that it would spin off its industrial and property operations via IPOs so any signs of that coming to fruition will no doubt buoy sentiment.
Tim’s Take
- JD.com started out life by differentiating itself from the competition – i.e. Alibaba – by going with the Amazon-esque model of actually taking on inventory and then selling it on.
- Back in the early days in China, when internet platforms didn’t really have any cred, that works spectacularly. The company has managed to build out a world-class logistics operations but it faces challenges.
The popularity of platforms like Pinduoduo (NASDAQ: PDD), which specialises in social commerce, and Meituan Dianping (SEHK: 3690), an online delivery and travel specialist that is now expanding into groceries, have taken a massive chunk of growth out of JD.com’s core business.
It seems like the old disruptors of JD.com and Alibaba are now being disrupted themselves.
Tim’s money tip of the week
A lot of us wonder how we can even start investing or where to begin. The best (and most simple) answer is an exchange-traded fund (ETF).
Basically, it’s buying a small piece of hundreds – if not thousands – of companies. That means you have diversification right off the bat.
And the best market to buy ETFs in is the US given the rich historical data of reliable long-term returns.
Over the past century or so, the American stock market has averaged an annualised positive return of between 8-10%.
One of the biggest – and cheapest! – providers of ETFs is Vanguard and one of the most diversified US-focused ETFs it offers is the Vanguard Total Stock Market Index ETF (NYSE: VTI).
It’s all about starting somewhere and building from there!
Story of the week
As the most revered investor of all time, it’s always interesting to see what the “Sage of Omaha” – aka Warren Buffett – is thinking when it comes to Berkshire Hathaway’s annual shareholder’s meeting (NYSE: BRK.B).
It was held last Saturday and Berkshire revealed it’s sitting on a cash pile of US$130 billion. He joked that he was happy sitting on cash with interest rates where they are as Treasury bills now yield above 5%.
He humble bragged that Berkshire is now earning around US$5 billion annually on its cash versus just US$40 million when rates were near zero.
Not a bad return for sitting in Treasuries but for the rest of us, we’ll need to keep plugging away at the investing game.