Asia Tea Time - Cup 25 ☕
This week, I cover news on Foxconn, Xiaomi, and Singapore’s Presidential election.
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Macro in Asia
Foxconn founder Terry Gou announces Taiwan Presidential bid
Terry Gou, the founder of Foxconn – the world’s largest contract manufacturer of electronics – that serves the likes of Apple, has announced his bid to become Taiwan’s new President.
Presidential elections are due to be held in January in Taiwan.
Why it’s happening
- Foxconn is a veritable giant in the contract manufacturing world and its founder Terry Gou has had previous ambitions to become Taiwan’s President having had a failed bid back in 2019.
- Gou says his candidacy is meant to form an opposition alliance against the ruling Democratic Progressive Party (DPP).
Why it matters
- The DPP has traditionally been the party in Taiwan that leans the most towards formal independence of Taiwan (from Mainland China).
- The Taiwanese Presidential election will determine the relationship between Taiwan and China’s Communist Party over the next few years – that’s pretty important for the world given the tensions we’re seeing in the Taiwan Strait.
What’s next?
- Watch for any comments or official statements coming out of China in the coming months as the CCP tends to be more supportive of the Kuomintang (KMT) party candidate.
Tim’s Take
Terry Gou has been accused of being sympathetic to China’s government (given his firm’s business interests there) but has countered with the accusation that the DPP was brought the prospect of war closer to Taiwan.
- He’s still a distant fourth in the polls and with DPP Vice President William Lai Ching-te the current frontrunner.
Company spotlights
Xiaomi profits beat expectations as it looks to launch EV
Xiaomi Corporation (SEHK: 1810), a smartphone and electronic devices manufacturer, reported its latest Q2 2023 results.
The company saw revenue drop but it did see adjusted net income soar 147%. Xiaomi says it’s on track to mass produce electric vehicles (EVs) by the first half of 2024.
Why’s it news?
- China’s smartphone market is slowing and it’s showing up in Xiaomi’s numbers as its revenue for Q2 2023 dropped 4% year-on-year to RMB 67.4 billion (US$9.2 billion)
- Xiaomi did manage to post adjusted net profit of RMB 5.14 billion for the quarter though, as it cut costs and focused more on flogging its pricier mobile models.
- Plans to launch a car have been in the pipeline for Xiaomi since 2021, as it looks to spend up to US$10 billion on EVs in the next decade.
Why it matters
- Beijing-based Xiaomi is hoping to grow into other areas as its core smartphone business starts to slow down.
- The company is also dealing with issues with its India business, with the company subject to a regulatory probe.
- However, Xiaomi – like many other Chinese consumer brands in the tech space – is trying to expand into new regions like Latin America and Europe via its devices and planned EVs.
What’s next?
- China’s economic data continue to disappoint so investors will need to watch consumer sentiment in the world’s second-largest economy while also monitoring Xiaomi’s ambitious plans to expand overseas.
Tim’s Take
- Xiaomi went public amid much fanfare back in 2018 but its shares today are still around 30% off its price when it first came on to the Hong Kong market.
- The company itself has reinvented itself on multiple occasions and is now actually the world’s third-largest smartphone brand – behind only Samsung and Apple.
China’s smartphone slowdown is also worrying – total smartphone shipments in the country in 2022 fell 14% to 287 million units. That was the first sub-300 million year for China’s smartphone market since 2013.
The big worry for shareholders is the plan to “go big” into EVs, an incredibly crowded space already in China with brands like BYD, Xpeng, NIO, and Tesla holding commanding market shares.
Manufacturing quality EVs, and doing it profitably, is very different to building small consumer goods. Does anyone recall the failed EV ambitions of innovative household products producer Dyson? This could easily turn out to be a similar ending for Xiaomi.
Tim’s money tip of the week
The relationships many of us have with our banks, when it comes to investing, can be fraught.
That’s because we tend to be bombarded with products – rather than advice – when we talk about investments with any bank’s financial advisors.
Of course, investment products that are hawked to us come with a whole load of fees attached which tend to benefit the bank. You? Not so much.
So, whenever we are approached by “financial advisors” with their product set, we should really question how much the fees are and what purpose the product serves.
Does it outperform a simple ETF of the S&P 500 Index? Are there massive fees for selling/buying the fund?
In this day and age, it has become a lot easier for individual investors to just go out and invest themselves – at super low cost. Don’t forget that the next time you’re offered an investment product.
Story of the week
It was Singapore’s Presidential election on Friday (1 September), which also happened to be a public holiday in the city state.
The role is largely ceremonial, despite the fact that it’s considered “head of state”, with the real political power still lying with the role of Prime Minister in Singapore.
While there are three candidates running for President – with previous Deputy Prime Minister Tharman Shanmugaratnam the favourite to win – it’s been Tan Kin Lian who has been making the news.
Every other day, it seems something he’s said is going viral on social media in Singapore – just not viral in a good way.
Perhaps the biggest takeaway is that to be successful in politics, having a filter is a prerequisite.