Asia Tea Time - Cup 20 ☕
This week, I cover news on the Chinese imports on oil, TSMC, my money tip on dividend investing, and Singaporean politics.
Macro in Asia
China imports record oil from Russia in H1 2023
According to a report in the FT, China imported record volumes of oil from Russia in the first half of 2023.
In June, Chinese imports of Russian oil reached an all-time high of 2.6 million barrels per day.
Why it’s happening
- China wants to stockpile the “black gold” as cheap as they can get it – ahead of what many expect to be a stimulus in the second half of the year.
- It also makes sense for China to grab oil from its friend while the stuff is effectively on sale (remember, sanctions are making Russian oil a lot cheaper).
Why it matters
- China’s economy has been slowing so this points to either a gearing up of a government stimulus in the second half of 2023, or just plain old inventory building of energy needs.
- As the world’s second-largest economy, where China gets its energy from – as well as how much it pays for that – will impact global energy markets and pricing.
What’s next?
- The strong rebound in China’s economy in 2023 has petered out pretty quickly as it’s burdened with property debt and slowing consumer spending. Where it goes from here will be closely watched, as will any potential Chinese government stimulus.
Tim’s Take
Talk of “energy security” has been front and centre of government policies worldwide, ever since Russia invaded Ukraine.
In China’s case, it’s particularly relevant as the country is the world’s largest importer of oil and natural gas.
For example, China imports 75% and 45% of its oil and natural gas usage, respectively. Meanwhile, over half of its liquefied natural gas (LNG) comes from strategically “unfriendly” countries, primarily Australia and the US.
By buying up more oil from “friendly” countries, China is naturally looking to diversify its future energy sources.
Company spotlights
TSMC cuts 2023 revenue outlook on demand weakness
Taiwan Semiconductor Manufacturing Co (TPE: 2330) (NYSE: TSM), the world’s largest semiconductor manufacturing firm, cut its 2023 revenue forecast by 10% on weakening demand.
Better known as TSMC, the chip company saw its Taipei-listed shares end the week nearly 5% down.
Why’s it news?
- As the world’s largest contract chip manufacturer, TSMC’s earnings are closely watched to see how the semiconductor industry is performing.
- Given TSMC is also the main provider of chips for the likes of Apple and Nvidia, the fact that it upped its revenue decline forecast to 10% (from a single-digit decline previously) doesn’t bode well.
- A delay in the completion of its Arizona chip production plant in the US (to 2025) also saw its share price weaken.
Why it matters?
- A lot of analysts had believed that the semiconductor industry’s earnings had “bottomed out” earlier this year.
- That portended an upturn in fortunes for chip players, even if economic growth globally was slowing.
What’s next?
- Earnings season in the US is upon us so TSMC shareholders will be watching what management at companies like Apple and Nvidia are saying about demand – for either iPhones or advanced AI chips.Investors will be watching the exact numbers more closely when Cathay Pacific reports its next month.
Tim’s Take
TSMC is responsible for manufacturing 90% of the world’s leading-edge semiconductors. As the world’s largest foundry (or fab), the company solely manufactures chips.
The designs of those semiconductors come from the likes of Apple or Nvidia. With its extensive knowledge and specific industry know-how, TSMC is now the best in the business.
On TSMC’s earnings and its outlook, the company is set to benefit no matter who “wins” in the AI battle as it’s the prime provider of the physical computing power – semiconductors – that drives it.
Tim’s money tip of the week
When we talk about dividend investing, many of us focus on just the yield. But in this day and age, when you can put your cash into an account and earn near 4% interest, thinking about yield may be counterproductive.
There are also a few more reasons why yield isn’t the best measure of a dividend stock. A stock’s return is made up of two components; the actual price and then the dividend. Add the two together and that gives you the “total return”.
With lower-yielding stocks, many tend to grow their dividend faster over time – this can then lead to appreciation in the share price if the business is performing well.
Like a tree that keeps giving you fruit to eat, you want your dividends to grow and keep giving to you over time.
Unfortunately, many high-yielding dividend stocks have unsustainable payout ratios, or can even cut the dividend when times are bad. That then leads to strong share price declines over time. That’s the exact opposite of what you want.
So, instead, focus on dividend stocks that show strong growth of the dividend over the long term and obsess less over the dividend yield.
With inflation at multi-decade highs, we need our dividends to be growing faster than the rate of inflation. And doing it on a sustainable basis, year in, year out.
Story of the week
Scandal engulfed Singapore politics this week as extramarital affairs – among various MPs and party members of both the ruling People’s Action Party (PAP) and the opposition Workers’ Party (WP) – came to light.
Big questions are being asked by political analysts, and the public at large, about who knew exactly what and when.
Perhaps the bigger story was the resignation of the Speaker of Parliament – Tan Chuan-Jin – after it was revealed that he had been having an ongoing affair with Group Representation Constituency (GRC) MP Cheng Li Hui.
Political scandals everywhere tend to result in only one outcome – resignations. Singapore seems to be no different.