4 min read

Asia Tea Time - Cup 14 ☕

This week, I cover news on China, Link REIT, and Temasek.

In case you missed it, I wrote about the 3 key takeaways from the DBS investor day. 

Macro in Asia

China economy’s post-Covid recovery falls short

China’s economy, as measured by its manufacturing purchasing managers’ index (PMI), fell faster than expected in May.

The official number fell to a five-month low of 48.8 and was down from 49.2 in April.

Why it’s happening

  • China’s economy was supposed to (according to the narrative) roar back after the pandemic. There was an initial rally on reopening but that’s now fading on a range of poor economic data.
  • The Chinese consumer hasn’t been as flush with cash as the American consumer post-reopening (many of whom received pretty sweet stimulus cheques from the US government during the depths of the pandemic).

Why it matters

  • China is Asia’s largest economy and a lot of countries – and companies – in the region rely on the health of it.
  • Countries globally are increasingly looking elsewhere to shore up their supply chains after China proved to be an unreliable supplier during the Covid-19 pandemic. Geopolitical concerns are also forcing firms to think more broadly.

What’s next?

  • There are simmering concerns over local government debt in China and how this could need restructuring in the near future. Something for investors to keep an eye out for.

Tim’s Take

China’s economy is now in a more middle-aged phase of growth. Its young, vibrant growth phase – characterised by supercharged investment and commodities consumption – is now petering out.

So, for investors the key question becomes one of long-term sustainability. Can companies continue to grow and innovate freely in the world’s second-largest economy?

The geopolitical tensions with the US appear to make this hard, as well as a Chinese government that’s intent on more control of the private sector (rather than market reforms and loosening of market restrictions).

News of raids on foreign consultants in China, based on “anti-spying” claims, really just adds fuel to the suspicion that foreign business isn’t welcome in China.

That’s just one example of how it’s now increasingly hard to reverse the impression that China remains “closed for business”.

Company spotlights

Hong Kong’s Link REIT sees first-ever drop in dividend

Hong Kong-listed Link REIT (SEHK: 823), Asia’s largest REIT by market capitalisation, announced its first ever decline in its dividend. It fell by 10.3% year-on-year for FY2023.

Why’s it news?

  • REITs are in the news right now given the uber high interest rates coming from the US Federal Reserve (Fed).
  • As Asia’s largest REIT, Link REIT is a general barometer of how sentiment in the REIT market is looking right now.
  • The REIT’s massive rights issue in February this year – where it issues new shares to raise capital for an acquisition – diluted shareholders.

Why it matters?

  • Link REIT has a formidable track record of growing its distribution per unit (DPU), or dividend.
  • Over the past 15 years (2007-2022), Link REIT had managed to notch up annualised average dividend growth of 10.6%.

What’s next?

  • The REIT continues to see strong occupancy and growth in its Hong Kong portfolio. Watch out for how its two new Singapore shopping mall assets perform as management look to continue its expansion out of Hong Kong and Mainland China.

Tim’s Take

Link REIT is a veritable beast when it comes to the world of Asian REITs. Its strong dividend growth is an anomaly in the REIT world of high yields and low dividend growth.

Now it’s yielding above 5.5%, which makes it an interesting option given its strong Hong Kong portfolio of suburban shopping malls.

However, perhaps many investors are wary that its best days are behind it given its strong exposure to its home market and Mainland China.

Management’s decision to keep expanding outside of China looks to be astute but it may take time for the benefits to show up in the numbers.

Tim’s money tip of the week

What insurance do we need? That’s a question that comes up a lot when we talk about protection.

But we first of all need to figure out what stage of life we’re at and whether we have any dependents.

For most young, single people, a simple term life or critical illness plan could suffice if we have healthcare coverage at work.

However, for many of us with young children or older parents to look after, our calculations might be different. For example, we might need a higher limit on coverage for life insurance.

At the end of the day, protection that you buy should have flexibility and NOT lock you in for like, 10-20 years with penalties if you withdraw early.

That’s because, like life, our financial situations (and needs) can change easily from year to year.

Story of the week

FTX and its bankruptcy was a mess, to say the least.

So perhaps it was some small consolation to see that Temasek, the Singaporean state-backed investment company, cut pay for the staff responsible for its investment into the failed crypto firm.

Temasek said it was “disappointed” with the investment. The world’s biggest understatement, no?