Hit me baby one more time

“To tie in Britney and China one more time, in 1999 China had a population of 1.258 billion at the end of the year, estimates currently are just over 1.4 billion people, in 16 years the largest population on the planet has added 142 million people, that is roughly the entire population of Russia added in just 16 years. Two and a half times our population, in a mere 16 years. No wonder infant formula milk is such a good business in that country. What is quite interesting when looking at the 16 year perspective of Chinese GDP from then to now is that it has increased a whopping tenfold over that period.”


To market to market to buy a fat pig. Britney Spears is 33 years old. The Chinese economic miracle is around 37 years old. Baby one more time (the Britney Spears song) is 16 years old. The anti corruption campaign in China is all of three years old this November, the time that Xi Jinping said that the economic reforms instituted all those years back (along with a strange blend of communism and capitalism) said enough is enough. There have been many arrests, expulsions from the communist party and in many other high profile cases, sentences in jail for bribery and corruption. This is the new China, one that deals with corruption. Why I mentioned Britney Spears and (hit me) baby one more time is that we see another poor PMI reading from China, the worst since March 2009.

And in case you needed reminding, that was the month that equity markets in the US bottomed out, I remember that. According to a quote I found on the interwebs, six days before the market reached a generational low, President Barack Obama said: What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it. That is great perspective from a lawyer, right? Since then the S&P 500 is up 164 percent. Nailed it President Obama. OK, how “horrible” does the Chinese PMI read from this morning look? If you look at the graph that I have grabbed from the release, it doesn’t sound as bad as the headline: Caixin Flash China General Manufacturing PMI

Whilst recently it has been bad, for the better part of 4 years Chinese PMI has been hovering around 50, sometimes above and sometimes below. I think what has spooked Mr. Market this time is that across many of the metrics measured in a survey of this nature showed decreases at a faster rate. The only thing building were stocks of finished goods, and at a faster rate. I have very little idea to know what to think of these surveys of real businesses on the ground, clearly the Chinese economy is slowing.

The Chinese government and the powers that be continue to reassure all and sundry that everything is going to be OK, whilst Pope Francis (the 266th Pope BTW) is visiting the US, so is Xi Jinping, the Chinese President and number 1! Except Xi is on the other side of the country, in Seattle. Xi is also going to meet with Bob Iger of Disney, Satya Nadella of Microsoft and even the wisest investor of all time (arguably) Warren Buffett of Berkshire Hathaway. Before he meets the real market soothsayer, American President Barack Obama in Washington DC. Xi seems to indicate that everything is OK in China.

To tie in Britney and China one more time, in 1999 China had a population of 1.258 billion at the end of the year, estimates currently are just over 1.4 billion people, in 16 years the largest population on the planet has added 142 million people, that is roughly the entire population of Russia added in just 16 years. Two and a half times our population, in a mere 16 years. No wonder infant formula milk is such a good business in that country. What is quite interesting when looking at the 16 year perspective of Chinese GDP from then to now is that it has increased a whopping tenfold over that period. Here is a graph from Tradingeconomics China GDP:

Wow, that is nothing short of amazing. By contrast, Japanese GDP is essentially flat in Dollar terms over the same period. Exactly, and I don’t see headlines about how Japan is finished, on the contrary I see headlines about the rising sun and generally it is alongside a smiling Eddie Jones. Sigh. And the USA, that is up nearly 80 percent over the same time frames. That all sounds rather good if you stretch it out over a decade and a half. By contrast the Chinese market, the Shanghai Stock market is up only 167 percent. The S&P 500 is up only 50 percent over that time frame. The Nikkei 225 is only up 12 percent in those 16 years. So I guess it is fair to say that the respective economies, or at least the US and China have comfortably outperformed their major stock market indices, as we well know however, the stock market is not the economy and the economy is not the stock market.

Britney’s hit me baby one more time rung out for the commodities stocks here in Jozi (and across the globe), the same concerns about China has seen some stocks plumb multi year lows. Anglo American sank 6.7 percent to end the day at levels last seen in April of 2005. And basically a 12 year return on the stock has been zip, zero, nil, nothing. Thanks so much for buying back those shares above 500 Rand a share. The picture is uglier in London, the stock in Pounds and pence at the worst level seen, well, ever, since they listed in June of 1999. The stock in the currency of the Great Britain is down 17.6 percent in the same time that the Chinese economy has grown tenfold. If any company missed the commodities boom, well, this was the one. By contrast, BHP Billiton since the middle of 1999 in London have seen their share price up nearly 400 percent. Yesterday the stock sank over 5 percent in London.

With the move South in Rand terms yesterday, Old Mutual is now a bigger company by market capitalisation than Anglo American. Two old companies, one from the Mother City, the other with its roots here in Jozi, this is a first in their listed lives, not so? For those watching the daily scoreboard, stocks as a collective sank 1.74 percent here in Jozi, Jozi, the All share is last at 49853 points. For the last 12 months stocks have been flat, completely flat. We are over ten percent lower than we were in April this year, the slog continues. The MPC deliberates today, I suspect that they may well pause at this juncture.


Company corner

Noteworthy news on SENS yesterday, Curro To Acquire Windhoek Gymnasium. They will spend R180 million for the school with 1,509 learners at the moment. This is the first move outside of RSA for Curro and falls part of their plans to grow their number of learners from the current 36,000 to 90,000 by 2020. There are a number of regulatory hurdles to jump through with the purchase and given that it is an international purchase there will be a couple more. Based on recent purchases in the Education sector it would seem that they paid a fair price for the school.


Linkfest, lap it up

It is not a surprise that streaming has passed physical sales for music. It is a bit of a surprise that it has taken this long though – Streaming Music Passes Physical Sales for First Time. You will probably find that as more people are willing to pay a subscription price to be able to stream any song they want, that the revenues of the music industry increases over time.

This will not help your next investment but will make you smarter nonetheless – Earth Blamed for Cracks in Moon

Being able to customise organic replacements, this is a very exciting prospect – For $10,000, you can now print your own pound of human flesh. This may revolutionise organ transplants in the future.

This is one of those statistics that is hard to believe – More people have died from selfies than shark attacks this year. The point to note though is thanks to scary news stories and movies like Jaws, people are more scared of sharks than they should be.


Home again, home again, jiggety-jog. That Chinese PMI read has seen to it that another sell off has ensued, stocks across Asia as a collective are down 2.75 percent. Eish. Not good for those watching today, very good for those folks that have spare funds that they need to find a home for, commit them to quality holdings that you want to hold on a “forever” basis. Don’t think about it, do it. Same companies, different prices. Enjoy your meat turning tomorrow, if that is your thing! Meanwhile, back at the ranch as they say in the classics, Chinese companies have struck a collective deal to buy 300 Boeing aircraft. SAA has a total fleet of 65 planes, around that number. American Airlines, the largest airline in the world by revenue, operates a combined fleet of 945 aircraft. The entire fleet of Lufthansa is around 300 aircraft, for comparisons sake. Yip, hit me China one more time.


Sent to you by Sasha and Michael on behalf of team Vestact.

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