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Asia Tea Time - Cup 55 ☕

This week I talk China’s car sales, not getting hung up on market timing and a recent high for Hong Kong’s Hang Seng Index.

Macro in Asia

China’s car exports hit record high while domestic sales decline

Fresh data showed that China’s car exports surged to a new record high in April, up 38% year-on-year to 417,000 vehicles. 

However, the country’s domestic car sales fell 5.8% year-on-year in April as intense competition and fragile consumer sentiment continues to put the brakes on China’s car market.  

Why it’s happening

  • China’s auto makers are some of the most efficient in the world and they’ve got some pretty competitive electric vehicles (EVs) and plug-in hybrids now. 
  • With the US effectively locking out Chinese vehicles from its market and Europe starting an anti-subsidy investigation into its auto companies, the country’s carmakers are being pro-active. They’re building up market share in South America, Southeast Asia, and Australia.

Why it matters

  • China’s car market is well known for being fiercely competitive and that’s helped its companies build up an impressive export base given the high quality of their cars.
  • However, that competitiveness has also lead to some insane price cuts on local vehicles. Even with those cuts, consumer sentiment isn’t all that great in the world’s biggest car market.

What’s next?

  • The EU’s investigating these “dumping” subsidies by China’s car market so watch out for any news on that front because that could seriously dent their ambitions in Europe’s sizeable market.

Tim’s Take 

We’ve been bombarded with news of how dire the Chinese economy is. That’s natural. Going from 8-10% GDP growth a decade ago to (realistically) less than 5% growth is going to give anyone the jitters.

But just because the Chinese consumer isn’t all that happy, doesn’t mean Chinese companies aren’t doing well.

The latest numbers on car exports illustrate the influence Chinese carmakers have on the global autos market.

China has quietly risen to become the second-biggest car exporter in the world, behind only Japan in 2023. 

That’s been down to some incredible supply chain management and vertically-integrated business models, with BYD being the standout operator.

The local consumer market in China is getting whacked with deflation, though. That might sound good (falling prices, yay!) but it isn’t good for the economy.

Recent price cuts by the likes of Tesla, BYD, and Li Auto – ranging from US$2,000 to US$4,000 – have just accelerated the general sentiment of price declines.

In fact, by the end of March, the number of price cuts in China’s auto industry had already reached half the total of that seen in the whole of 2023.

On the exports side, China’s heavyweights continue to make ground. Precision engineering combined with aesthetically attractive designs have ensured they’re competing toe-to-toe with Tesla.

We can see this rise in quality in other areas in China too – consumers are increasingly choosing local versus international (say a Huawei versus an Apple iPhone).

For China’s carmakers, it’s a tough business but scale will likely win out. If the leading firms can continue growing their customer base in international markets, then the potential for future growth will always be there.

Tim’s money tip of the week

When we invest into global stock markets, it makes sense to think that we can “time” things. But inevitably, the day after you buy the market falls.

That’s just the way it is. Getting used to the fact that you will never “buy at the bottom” and “sell at the top” gets you in the right mental state to invest over the time horizon that matters – the long term.

These 1-2% movements up or down over daily or weekly stretches are effectively meaningless when we talk about being invested for decades.

That’s because that wealth compounds at an average of 9-10% per year over the long term (if you invest into a broadly-diversified global stock ETF). 

So, when we do have a stash of cash to invest, typically it makes more sense to put it right into the market then – via a lump sum investment – versus drip-feeding it into the market through dollar cost averaging (DCA).

Of course, that comes with the caveat that you don’t need that moolah for the next five years at least

At the end of the day, though, don’t get caught up with when you buy but rather focus on how long you intend to stay the course.

Story of the week

Hong Kong’s stock market has been making headlines in the past week for reaching its highest level in eight months.

There has been some strong buying on really, really cheap valuations. However, looking at the longer term chart doesn’t really make for pretty reading.

The Hang Seng Index is still down close to 40% from its all-time high, which was reached back in January 2018.