This week, I cover news on the US government and Chinese stocks, Sembcorp Industries, and Thai politics.
Macro in Asia
US government lobbied to limit investment into Chinese stocks and bonds
The head of a US congressional committee on China has urged President Joe Biden to widen expected forthcoming limits on investments into China to include stocks and bonds.
Why it’s happening
- China and the US are kind of in a new cold war of sorts and any chance to slam China in Washington is seen as a “no-brainer” for politicians.
- Beyond that, there have been worries over the use of American technology in China but also how much capital flows into the world’s second-largest economy from the US – mainly via private equity (PE) and venture capital (VC).
- It’s widely expected that at the end of August, the White House will come out with new restrictions limiting US investment into China in sensitive technologies – such as semiconductors, AI, and quantum computing.
Why it matters
- The US has typically been a large player in China’s private markets, although that’s now reversing.
- According to S&P Global, the number of PE and VC investments from the US into China fell by 40% year-on-year while the aggregate value of US investments in China plunged 76% year-on-year to US$7 billion.
- That potential ban on private investment into sensitive sectors could be widened to specific sectors in public stock markets, such as companies that are linked to the Chinese military.
- While China and the US will continue to see tensions simmer, there’s talk of a potential opening of communication lines between top government officials. That should be a big positive in helping cool misunderstandings.
- This is typical talk from congressional committees in the US when it comes to China. In this environment, if you’re seen as being “soft” on China, you would be in a very tiny minority.
- The big question for the US government is how many restrictions they place on investment into these sensitive technologies.
- There is bound to be a retaliatory response from the Chinese government but the severity of that is not likely to be huge.
While the US government worked constructively with Japanese and Dutch officials to align sanctions on sensitive chip-making technology, in this instance they seem to moving on their own terms.
In Europe, and elsewhere in Asia, the way that countries are dealing with China is going to differ.
Sembcorp Industries posts higher H1 2023 earnings on renewables
Sembcorp Industries (SGX: U96), a conventional power and renewable energy provider, posted profits of S$530 million for the first half of 2023 – an increase of 8% year-on-year.
Why’s it news?
- Sembcorp Industries has been one of the darlings of the Singapore stock market so far this year. Its shares have risen over 60% in 2023, after soaring around 70% in 2022.
- The main reason has been its transformation from a traditional power generator – using fossil fuels – to a model focused on acquiring clean energy assets.
- And it showed up in its earnings as Sembcorp’s renewable energy segment posted net profit of S$117 million in H1 2023, up 54% year-on-year and far outstripping the 8% profit growth at the group level.
Why it matters?
- Singapore is a small country geographically and so, as is common with other large cap companies like REITs, Sembcorp is acquiring clean energy assets globally, in places such as India and China.
- The growth of the company has also allowed Singapore residents to tap into a local investment opportunity that’s listed on the Singapore Exchange (SGX). It’s the only pure-play renewable energy stock on the SGX.
- Sembcorp wants to generate 70% of its net profit from sustainable solutions by 2025 and so far, it’s only at 27%. So it has a way to go but watch for further clean energy acquisitions.
- Sembcorp Industries has been given a new lease of life after it announced it would pursue a “brown to green” energy transformation.
- For investors, it’s worth remembering that its traditional power business still makes up the bulk of profits and Sembcorp has benefitted from higher electricity and gas prices over the past year.
Dividend investors might also be interested in the company as a “dividend growth” option. It’s not widely known but Sembcorp bumped its dividend per share (DPS) by 25% in 2021, 60% in 2022 and has hiked it by 25% in the first half of 2023.
Sembcorp’s dividend appeal has flown under the radar, mainly because its shares yield only around 2%.
Tim’s money tip of the week
When investing, doing nothing is usually the best course of action. Whenever we’re out there trying to grow our wealth, the default emotion is to feel like we need to be doing “something” a lot of the time – to ensure we get the best results.
However, one of the reasons so many active managers at fund houses underperform a basic stock market benchmark (like the S&P 500) is that they trade in and out of stocks so much.
By doing this, we actually miss out on the best stretches of runs in the market overall.
Focusing on just investing a set amount (into broadly-diversified ETFs) every month and leaving it there to compound tends to yield the best results.
It’s the fact that it takes time that it’s not seen as sexy. Buying the next “hot stock” that’s going to skyrocket 200% in the next week sounds like fun but more often than not, it usually ends up in capital loss.
So, the next time you’re thinking of making wholesale changes to your portfolio, just remember that great quote from economist Paul Samuelson:
“Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Vegas”.
Story of the week
In Thailand, colours mean everything in politics. And so it was with a chocolate-mint drink that Pheu Thai (PT) leaders were seen toasting with pro-military party figures at insider talks.
The Move Forward Party (MFP) leader Pita Limjaroenrat – whose party won the most seats in the general election – has effectively been frozen out as potential Prime Minister.
Dubbed the “friend-betraying” drink, many cafes and restaurant owners (who are pro-MFP and pro-democracy) are now refusing to sell the drink.
Perhaps a new Thai political movement will rise from green and brown.