100 Bagger in China

“Stress less about the things beyond your control, know that children being born in China are around 100 times better off than their parents generation. Really.”


To market to market to buy a fat pig First day back for the markets yesterday, at least in the “New Year”. I used to tell my colleagues to remind me of the New Year when the Chinese ticked over into their new calendar year, after all, I said, they are the fastest growing economy in the world. Whilst the growth trajectory of China has slowed, off a monstrous base now, it still remains an economy that should grow in the mid single digits. A relatively easy concept seems lost on some folks, a 10 trillion Dollar economy growing at five percent records greater economic growth than a 4 trillion Dollar economy growing at 10 percent. China cannot grow at the same breakneck speeds that changed and pulled them out of extreme poverty just a few decades ago.

A three decade growth trajectory that possibly has never been seen on this sort of scale has reduced the poverty rate in China from 88 percent in 1981 to low single digits now. It may still not be a perfect system for many, the lack of personal freedoms and full democracy, it does seem to have worked and benefited a large amount of common and ordinary people. And of course the political elites. There are still, according to the United Nations Development Program, 84 million people in China who live on less than 1.25 Dollars each and every day. Equally, 234 million urban migrants do not share the same rights as the urban citizens who were born there.

It is hard to try and fathom the size and scale of that number, a number of people who are essentially migrants in their own country. Many South Africans can associate with this tough lifestyle and the injustices of the past. As a collective, the number of migrant labours in China would be the fifth largest country in the world, more than Brazil, less than Indonesia. An urban immigrant population that is more than four times the entire population of South Africa. Whilst the ability to go from a “survival” and essentially agrarian existence to an urban existence, which in itself in downright tough and gritty, poverty reduction in a short period of time is to be applauded. The central planning systems themselves have gotten rich along the way, politicians getting rich off the system in what is supposed to be an equal society, don’t believe that for a second.

And yet for as long as I have been doing this, people are always worried about the Chinese growth story, whether it is not able to maintain the same growth rates (it is impossible to grow in perpetuity at that high rate), or high inflation, or a clamp down on human rights, or the inability to deal with graft, or too much credit, or the inability of the consumer to maintain growth rates with greater consumption. China will be fine, US politics and the current posturing. The economy will eventually have grown 100 fold in around 40 years, again, a number so big that you have to read it several times. Yet, if you think about it on a per capita basis, China is by no means even getting started. On a purchasing power parity basis, per capita, China is around 7-8 percent more than us (South Africa). Less than Thailand, per person that is. Half of that of Portugal, and let us face it (desculpa), we don’t associate that nation amongst the richest in the developed world.

This time last year stocks sold off heavily through January in what was the worst start to a January in the modern era, post World War Two when using the S&P 500 as a yardstick. Oil price were pummeled and commodity prices were plundered, as Chinese growth rates were called into question. Again.

And whilst there may be many that still hesitate to believe that the figures that the government there publish, look no further than some of the stocks that we own. Nike. Starbucks. Even Richemont in mainland China, and of course there is the big daddy of the local stocks, Naspers. Those numbers could not and would not be fudged. Nike footwear division grew at over 20 percent in Dollars in China, apparel at 18 percent at the last check. Starbucks reported 6 percent growth in their Chinese business, ahead of all their other territories.

Richemont reported sales for the whole of China (that includes Macau and Hong Kong, hotspots for tourists from the mainland) that dropped. For mainland China, excluding the hotspots, sales grew sharply ahead of the rest of the group. In the last TenCent numbers (reminder, Naspers owns just over one-third of this business), the company reported growth in their business of over thirty percent. Entertainment, sneakers and apparel, coffee and jewelry (like in most places across the world) is doing just fine, even if you don’t believe the “official” numbers.

What I think I am trying to say is that there are things to anxious about and there are things that you can do nothing about. Most events and movements you have little control over. There are over seven and one quarter billion of us who wake up across different territories in different levels of government that have different (and the same) aspirations. Some wake up in North Korea sadly, some wake up in lands of plentiful opportunity, day in and day out. Getting anxious about China is about as useful as worrying if the people on the road will drive properly. Which they won’t, actually. Stress less about the things beyond your control, know that children being born in China are around 100 times better off than their parents generation. Really.


Quick markets check, good economic data from the same said China accounted for a global rally of sorts, our markets closed the first trading day of the year up nearly three-quarters of a percent to just over 51 thousand points on the JSE ALSI. The Rand has caught something of a bid, which is good news for inflation, the petrol price will no doubt crimp the ability of the general consumer to meet all their January commitments. Whilst Christmas may be the most wonderful time of the year, January for Jo Consumer is not the most wonderful time of the year. Having said that, I stood in a fully staffed (the tills) queue at Woolies yesterday that must have matched the longest waiting time. On record.

Across the seas and far away, in New York, New York, stocks started on a positive note, the broader market S&P 500 ended the session 0.85 percent better than where it started, as did the nerds of NASDAQ. The Dow Jones Industrial Average, which smoked those two indices last year in terms of performance, lagged a little. A 0.6 percent gain on the day was more than respectable! Much was being made about the story of Ford cancelling a build of a factory in Mexico, instead planning to stay in Michigan. Talk heavy and carry a big stick, that’ll mix things up. Michael said in chatting to a fellow over the December break that had a business in the US, just the fact that the pending administration has called for “America first”, he has increased CAPEX. Globalisation, not so fast you good thing.

Tesla released a production number that was “disappointing” compared to Musk’s lofty targets, at face value the increase in units delivered sounds pretty stunning – “Tesla produced 24,882 vehicles in Q4, resulting in total 2016 production of 83,922 vehicles. This was an increase of 64% from 2015.”. That Musk guy has huge plans. Paul was saying that in his recent visit to the US, they sat in the SUV model of the Tesla, the X, with the “falcon doors” and had nothing other than good things to say about the vehicle. The sharing economy and self driving cars, it certainly makes sense to keep your vehicle working for you, standing idle over a workday seems crazy. Equally, the whole idea of owning a vehicle will start to seem more and more distant as time goes on, and I am not too sure what that means for manufacturers that do not keep abreast with the times. What will it mean for the insurance industry? Self driving cars, mean fewer accidents, fewer tow trucks, fewer panel beaters and less mechanics to fix cars that have fewer moving parts.


Linkfest, lap it up

Stay long Visa. Really. A cashless society in developed countries is probably closer than you think. Now there is another reason for that to speed up, money is disgusting too, via the Scientific American – Dirty Money – The public health case for a cashless society. I wonder if your credit card or phone are equally dirty? Possibly.

Ten years ago, would you have figured that at the Consumer Electronics Show in 2017 we would be talking about Virtual or Augmented Reality, robots and drones, driverless cars and something called the Internet of things? Probably not, those would have belonged in some strange movie that nerds watch. Yet they are here, and there are many interesting investment areas, Amazon, Alphabet, Facebook , Tesla and Apple are some of the investments that will be amongst the leaders in getting there, this summary via Quartz – Everything you need to know about CES 2017 in less than two minutes.

Also via Quartz is an article of what to do (and what not to do) when you arrive back at work and think about quitting. I recall meeting a German divorce lawyer on holiday once and was struck by what she had to say about her job. She said her busiest time of the year was when holidays finished and people realized that they didn’t like spending time with one another. Waste of money to figure that out, right? Well, in the same way, a job is something that you are married to (in part), so do not make any hasty decisions, think carefully – The best and worst ways to quit your job.


Home again, home again, jiggety-jog. Stocks have started slower and lower here in Jozi. Stocks across Asia look higher, the Dow futures look marginally better. Perhaps stocks will catch a bid across the day, when markets across Europe open!


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

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