Asia Tea Time - Cup 43 ☕
This week I talk China stocking up on gold, FOMO when investing and Lionel Messi in Hong Kong.
Macro in Asia
Gold shines as Chinese investors load up on the yellow metal
Chinese investors have been buying up gold as a store of value, amid declining property and stock markets, according to the World Gold Council (WGC).
This has helped push up the price of gold to above US$2,000 per troy ounce in 2024.
Why it’s happening
- Remember that China’s property and stock markets are in a massive funk, along with a falling Chinese yuan, so where can investors actually protect their wealth? In a metal that has global appeal (gold), of course.
- Gold also has a special place in Chinese history, having been used for centuries since the days of the Han Dynasty.
Why it matters
- China is the world’s largest single market for gold so what its households (and central bank) buy can impact asset prices.
- Gold is a global asset that is often used as a store of value for investors who are worried about either inflation or volatility in markets. As a result, the price of gold has recently hit an all-time high.
What’s next?
- With inflation still higher than normal worldwide, gold looks likely to be a favoured asset class. However, the direction of interest rates in the US, along with the strength of the US dollar, can impact where the gold price goes.
Tim’s Take
Gold has always had a certain appeal for investors but in China it’s become a much more critical asset in that it serves a key function – protecting wealth.
However, besides Chinese consumers buying up gold, one thing the recent numbers from the WGC highlight is just how powerful central banks can be in moving the price of gold.
Overall gold demand actually fell last year by 5% but after incorporating over-the-counter and stock flows, which include less-than-transparent sources of buying like sovereign wealth funds and high net worth individuals, annual demand was its highest on record.
According to the WGC, central bank buying of gold was led by China. This might be a structural change that is afoot as the government in China looks to diversify its assets beyond those denominated in just the US dollar.
While the government does hold a lot of US Treasury bonds, the threat of future conflict with the US – and any accompanying financial sanctions – means that holding a higher percentage of reserves in physical, real assets (like gold) make sense for China.
And since the price of gold is not controlled by any one entity, it can’t be manipulated by sanctions or monetary policy.
As for the country’s individual investors, gold will continue to shine as a potential investment as long as China’s property and stock markets remain depressed.
Tim's Money Tip of the Week
The FOMO – “Fear Of Missing Out” – struggle is real. That’s particularly true in the investing sense, when you’re seeing people around you make money from buying specific stocks.
However, just like the fear of investing when everything is falling can be damaging to long-term wealth creation, FOMO when certain stocks are going up can also negatively impact your wealth.
We’ve all heard of friends who have bought this stock or that, which has then “gone to the moon”.
For example, the semiconductor company Nvidia (NASDAQ: NDVA) recently saw its shares hit an all-time high on the back of hype surrounding Artificial Intelligence (AI).
While there’s no doubt that there are companies that will benefit from this trend, if you invest in a plain S&P 500 Index of America’s largest companies (via an ETF), you’d already be getting significant exposure to companies like Nvidia.
In addition, you’d also get to be exposed to other technology firms using AI, like Tesla, Microsoft and Meta.
Remembering that holding any single stock leaves you open to serious volatility is a good reminder that FOMO can quickly turn to panic when prices start falling.
Story of the Week
Hong Kong has nabbed a sporting coup by attracting American football club Inter Miami, along with its superstar Lionel Messi, to play a Hong Kong select XI this weekend.
Unsurprisingly, Messi football shirts are being sold out across the city amid concerns about whether the Argentinian superstar would play given he’s carrying a slight injury.
Messi is the second-most followed person globally on Instagram (with 498 million followers), behind only Cristiano Ronaldo – with 619 million for those interested.
It highlights the global “soft power” that football can deliver and Hong Kong’s Messi faithful will be hoping to catch a glimpse of him come kick-off time on Sunday.