Asia Tea Time - Cup 7 ☕
This week, we cover news on China's exports, South Africa’s Prosus, and LVMH Moet Hennessy Louis Vuitton CEO and founder Bernard Arnault.
Macro in Asia
China’s exports jump 15% higher in March
There was an unexpected surprise this week as data showed China’s exports in March soared by 14.8% year-on-year.
That broke a five-month streak of declines and came as a shock to economists, who were projecting a 7% year-on-year decline.
Why it’s happening
- So, the whole “Covid Zero” strategy wasn’t exactly great for China’s economy. Big shocker.
- Loads of Chinese people getting “The Vid” after the country frantically reopened hasn’t helped China’s supply chains or factory output since October 2022.
- Most of the increase came from higher shipments of “new energy vehicles”, a fancy way of saying Electric Vehicles (EVs)
Why it matters
- Well, China is known as the “world’s factory” for a reason – exports made up 20% of its US$17.7 trillion economy in 2021.
- With growth in the US slowing and interest rates at close to 5%, the world is gagging for even a teeny bit of positive news on the world’s second-largest economy.
What’s next?
- China’s first-quarter 2023 GDP numbers come out next week. They’ll be watched closely to see whether they line up with the government’s ambitious 5% GDP growth target for 2023.
Tim’s Take
- Exports were up for the first time since September 2022 so that’s got to be positive, right? In a sense, it is but investors shouldn’t get too excited.
- It was more a function of reopening and exporters filling orders that had built up during the days (starting in November 2022) when everyone in China was getting Covid for the first time.
- What was interesting was the strength of growth in exports to Russia and Southeast Asia. The top product in terms of export growth was cars – testament to the rising power of China’s car brands.
In 2022 China’s auto makers shipped 3.11 million vehicles – a whopping 54.4% increase on 2021.
- That’s no surprise as the likes of NIO (NYSE: NIO) (SGX: NIO) (SEHK: 9866) and BYD (SEHK: 1211) have started to make their presence felt in key markets in Asia and Europe.
- With around a quarter of China’s auto exports in 2022 being EVs, these brands appear ready to keep investing and expanding to ensure they give Tesla (NASDAQ: TSLA) a run for its money.
Company spotlight
South Africa’s Prosus looks set to sell more of its Tencent stake
South Africa-based investment holding firm Prosus plans to place an additional 96 million Tencent shares into the Hong Kong Exchange’s clearing system.
That tends to indicate that it will soon sell shares. Tencent stock promptly slumped 5.2%, its worst one-day decline since January.
Why’s it news?
- China tech in general was on a high after news that Alibaba was going to split itself into six companies.
- That got investors giddy about potential breakup deals for other industry stars like Tencent.
- Prosus – a holding company which was set up by its parent Naspers to hold its stakes in tech businesses – has been gradually selling down its stake. Why? To fund its own share buyback, of course.
Why it matters
- That whole crackdown on Chinese tech companies – by Emperor Xi and his band of merry men – still has many investors jittery about whether the witch hunt is over.
- Large investors in Chinese tech companies, like Prosus, may decide to periodically trim their stakes by selling shares in big ol’ chunks.
What’s next?
- First-quarter earnings are coming up, which will be a good opportunity for investors to see how the tech giants have been faring in the first few months of a post-Covid China.
Tim’s Take
- So Prosus is trimming its stake in Tencent, again. That’s been something that’s been happening at a decent clip for a few years now.
- What was more interesting this week was news (according to the FT) that Softbank, the Japanese tech conglomerate, has been making moves to sell its remaining stake in Alibaba for US$7.2 billion.
- After that, Softbank’s stake in Alibaba will be just 3.8%. Softbank’s reasons for the sale included raising extra cash for share buybacks (surprise, surprise) and also limiting its exposure to China.
- Softbank also has a massive commitment in the form of its Vision Fund II – part of CEO and billionaire Masayoshi Son’s fundraising efforts to find the next Alibaba.
First off, owning China tech stocks today is different than it was a decade ago when the government was actively championing national champions in consumer tech. Now there are numerous regulatory and governmental concerns around owning them.
Second, the actual businesses themselves have become less appealing as slower growth and increased competition have taken hold. Revenue growth for a lot of these tech stocks has slowed dramatically and their growth trajectories have become a lot less clear.
- Management teams at the likes of Prosus and Softbank likely realise that these tech businesses’ best days are behind them. So, selling down their stakes and returning the cash to shareholders makes sense.
Story of the week
Although Elon Musk was making headlines for embarrassing a BBC journalist this week, another man in Europe was making news for extending his lead as the world’s richest person.
LVMH Moet Hennessy Louis Vuitton CEO and founder Bernard Arnault saw his (already sizeable) fortune swell by another US$12 billion after the luxury goods company reported blowout sales numbers for the fourth quarter of 2022.
Now personally worth US$210 billion, Arnault has turned the luxury goods company into a veritable heavyweight owner of the most sought-after brands. Musk sits in second, with his net worth at around US$180 billion (cry me a river).
This surge in LVMH’s sales was driven – perhaps unsurprisingly – by Chinese shoppers splashing the cash on luxury goods after coming out of Covid Zero lockdowns.
It’s no wonder French President Macron has been pushing for better relations with China given how much businesses in Europe rely on the Chinese luxury consumer.