Hi Larry, long term China valuations are indeed attractive, but how does a US recession weigh into this assessment? Would a recession (which I think is highly likely in 2H23 or sooner) kill the China recovery story, or do you think China's reemergence from Covid is a secular trend & will continue despite a US/EU recession? WOuld you concentrate on the KWEB names, or do you think it will be broad based? Thanks!!!
Hi TC - when I look at China fundamentally, the KWEB components (BABA/TCTZF/BIDU and others) mainly derive 90% of their revenues from mainland China. This means their operating profits and free cash flows are essentially going to be dependent on China's economy. A U.S. recession impacts KWEB companies in the sense that there may be weaker international revenues and perhaps secondary effects. But it's not the main reason to negate the China recovery story.
Bigger risks include how China deals with regulation as well as geopolitics and the sanctions surrounding internet companies.
For U.S. investors, Yes i would focus on KWEB names. For HK/Singapore investors, there are HK-listed stocks (the ones with the most volume on HSI) that also add diversification value.
Larry, thanks for the response as always. Is the play here to do single names (selecting those with high domestic revenue share), or is a broad-based KWEB ETF in play as well? I imagine other subscribers would also be interested in your opinion!
KWEB ETF or other China etfs like FXI or CQQQ are safer than just individual names because they have diversification benefits. Individual names are if you happen to like that company’s prospects
Hi Larry, long term China valuations are indeed attractive, but how does a US recession weigh into this assessment? Would a recession (which I think is highly likely in 2H23 or sooner) kill the China recovery story, or do you think China's reemergence from Covid is a secular trend & will continue despite a US/EU recession? WOuld you concentrate on the KWEB names, or do you think it will be broad based? Thanks!!!
Hi TC - when I look at China fundamentally, the KWEB components (BABA/TCTZF/BIDU and others) mainly derive 90% of their revenues from mainland China. This means their operating profits and free cash flows are essentially going to be dependent on China's economy. A U.S. recession impacts KWEB companies in the sense that there may be weaker international revenues and perhaps secondary effects. But it's not the main reason to negate the China recovery story.
Bigger risks include how China deals with regulation as well as geopolitics and the sanctions surrounding internet companies.
For U.S. investors, Yes i would focus on KWEB names. For HK/Singapore investors, there are HK-listed stocks (the ones with the most volume on HSI) that also add diversification value.
Larry, thanks for the response as always. Is the play here to do single names (selecting those with high domestic revenue share), or is a broad-based KWEB ETF in play as well? I imagine other subscribers would also be interested in your opinion!
KWEB ETF or other China etfs like FXI or CQQQ are safer than just individual names because they have diversification benefits. Individual names are if you happen to like that company’s prospects