Thanks for the depth of thinking that clearly went into this piece Leonid.
A couple of off-the-cuff reactions:
"...the most important building block is the Hukou reform."
- Agreed, this will be an important driver behind further urbanization. Additionally, there have been some protests against the reform, from existing holders who felt they had to put in much more work to gain the Hukou, especially in the top tier cities. However, what would be likely is a reduction of cross-province travel for work, and an increase in intra-province migration, from rural villages to the larger cities in the provinces. This would likely mean more growth for lower-tier cities, rather than growth being concentrated within the top-tier cities as in the past.
"China’s issue is not liquidity, its term. "
- This is very true. As a Deputy Director of the National Council for Social Security Fund put it, China does not lack money, but long-term capital. The amount of retail and quant money sloshing around in the stock market makes for a uniquely volatile environment, characterized by short manias and long bear markets. However, this might well mean almost an equity term premium for more patient capital (Tencent, Shenzhou Intl & Moutai come to mind).
And two questions:
- Given the ongoing trade tensions, are you looking at any markets beyond China, to which Chinese businesses may expand capacity in (e.g., Vietnam, Mexico, Turkey, etc.)?
- Which aspects about Zijin appeal to you? Is it mostly the assets they own, and are there any other advantages that stand out (especially given that they've been a 5-bagger over the past 5 years, so the price may not appear immediately cheap).
Thanks for such a detailed comment, I really appreciate it! I did not see it earlier somehow.
In terms of markets I don’t think there’s a general rule (like Vietnam or Mexico first) rather horses for courses. Countries with ability to supply US and EU become important, but as trade limitations get introduced, variability may become key. So if you have your mfg facility in Vietnam and its status changes you need to start over, so to avoid that it becomes smaller facilities but more distributed.
For zijin it’s 2 things: assets and execution. They were one of many gold producers. Now they are one of the biggest copper/gold miners, mostly due to an aggressive management team. But not aggressive for jo reason - they found the best possible asset with Ivanhoe’s KK mine and invested at the bottom of the cycle. I think it still has the potential to double from here on the back of copper strength and lithium recovery (eventually)
Great insight for investors focusing on China!
Nice first post!
Very well written. Thank you Leonid.
Thank you for the kind words, Chetan
Thanks for the depth of thinking that clearly went into this piece Leonid.
A couple of off-the-cuff reactions:
"...the most important building block is the Hukou reform."
- Agreed, this will be an important driver behind further urbanization. Additionally, there have been some protests against the reform, from existing holders who felt they had to put in much more work to gain the Hukou, especially in the top tier cities. However, what would be likely is a reduction of cross-province travel for work, and an increase in intra-province migration, from rural villages to the larger cities in the provinces. This would likely mean more growth for lower-tier cities, rather than growth being concentrated within the top-tier cities as in the past.
"China’s issue is not liquidity, its term. "
- This is very true. As a Deputy Director of the National Council for Social Security Fund put it, China does not lack money, but long-term capital. The amount of retail and quant money sloshing around in the stock market makes for a uniquely volatile environment, characterized by short manias and long bear markets. However, this might well mean almost an equity term premium for more patient capital (Tencent, Shenzhou Intl & Moutai come to mind).
And two questions:
- Given the ongoing trade tensions, are you looking at any markets beyond China, to which Chinese businesses may expand capacity in (e.g., Vietnam, Mexico, Turkey, etc.)?
- Which aspects about Zijin appeal to you? Is it mostly the assets they own, and are there any other advantages that stand out (especially given that they've been a 5-bagger over the past 5 years, so the price may not appear immediately cheap).
Thanks for such a detailed comment, I really appreciate it! I did not see it earlier somehow.
In terms of markets I don’t think there’s a general rule (like Vietnam or Mexico first) rather horses for courses. Countries with ability to supply US and EU become important, but as trade limitations get introduced, variability may become key. So if you have your mfg facility in Vietnam and its status changes you need to start over, so to avoid that it becomes smaller facilities but more distributed.
For zijin it’s 2 things: assets and execution. They were one of many gold producers. Now they are one of the biggest copper/gold miners, mostly due to an aggressive management team. But not aggressive for jo reason - they found the best possible asset with Ivanhoe’s KK mine and invested at the bottom of the cycle. I think it still has the potential to double from here on the back of copper strength and lithium recovery (eventually)