It was a pretty quiet week with most of our stocks up in the 3% -5% range. There are no changes to the portfolio.
Global and emerging stocks continued to move ahead as President Trump offered a “goodwill gesture” to China, suggesting potential progress in October talks.
The U.S. will delay increased tariffs (25% to 30%) on $250 billion worth of goods by two weeks until Oct. 15.
It seems to me that U.S.-China tensions are just something we need to get used to as background noise.
The Brexit fiasco highlights why a country should never make foreign policy by referendum.
Amidst its own discord, the Hong Kong stock exchange made an unsolicited $36.6 billion offer to acquire its London-based rival in a deal that would unite two of the world’s major trading hubs.
This deal would create a truly global market infrastructure group connecting east and west.
I’m searching for Hong Kong ideas that have pulled back as the protests escalated. Cathay Pacific stated that tourist arrivals in Hong Kong were nearly half of what they usually are in what is normally a strong summer holiday month
I find it fascinating that the Marshall Islands, an isolated island nation in the Pacific Ocean with a population of about 75,000, is proceeding with the creation of a blockchain-based national currency, the Marshallese sovereign or SOV. We’re going to see more on this front for sure.
The spat between South Korea and Japan is getting quite serious. South Korea will file a complaint with the WTO today against Japan’s export curbs of key materials used by chipmakers like Samsung accusing Tokyo of being “politically motivated” and “discriminatory.”
Portfolio Update
Alibaba (BABA) shares added two points this week following last week’s gains as investors weighed its latest quarter with revenue jumping 42% over last year comparisons, crushing estimates by $880 million, while earnings per share came in at $1.83, beating Wall Street estimates by $0.34.
In addition, BABA posted an increase of 20 million active customers, up 17% since last year and higher-margin customer management revenue increased 27% since last year. All-important cloud revenue saw an increase of 66% since last year.
Reported revenue during its last quarter was up 51% or 39% excluding acquired businesses. The volume of merchandise moved on its platform was up 20% and Alibaba’s mobile monthly active users was up almost 18%
The company’s e-commerce business lends itself well to a natural monopoly as BABA has over a 50% market share. Alibaba’s cloud infrastructure business also benefits from its scale and lower costs.
BABA can get back to the 200 level provided that trade tensions ease. I encourage you to buy a full position in this stock if you have not already done so. BUY.
DBS Bank (DBSDY), a high quality play on growth in Southeast Asia, advanced marginally this week.
It is the largest and strongest bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore. Its tentacles reach out through 200 branches in 50 cities. DBS produces steady profit margins, revenue, and earnings and is also increasing market share in consumer and corporate banking.
Despite all of these strengths, DBS is trading at only eleven times trailing earnings and sports a solid 4.5% dividend yield. Any tangible improvements in the U.S.-China relationship will get this stock moving. BUY A HALF.
ICICI Bank (IBN) shares were up 5% this past week. India’s second-largest private lender recently reported a quarterly profit compared with a loss a year earlier, helped by lower provisions and higher retail loan growth. Net profit for the fiscal first quarter was $277 million.
The bank’s corporate loan book grew at a pace of 13% in the quarter, while its retail loan book grew 22% and net non-performing assets (NPA) at the end of the June quarter were down 51%.
IBN is a solid India play and there are still 191 million Indians without a bank account, which means a lot of potential new customers. This is a good entry point to take a stake in IBN if you have not yet done so. BUY A HALF.
Infineon Technologies (IFNNY) shares climbed 7% the previous week and pierced 20 this afternoon in part due to renewed optimism on U.S.-China trade talks.
Infineon, founded when the company was divided from its Siemens parent in 1999, is a leading broad-based European chipmaker with exposure to secular growth drivers in the industrial and automotive chip sectors.
While the company has spun off of its low-margin wireless baseband chip business to Intel, Infineon is in the process of acquiring Cypress Semiconductor (CY) with plenty of cross-selling opportunities for these complementary companies.
This is an excellent time to begin building a position in this high quality stock. BUY A HALF.
LexinFintech (LX) was up 4% today on top of an 8% gain last week due to encouraging financial results and the announcement this week that it is raising $300MM.
Here are just a few highlights:
• Registered users increased 72% to more than 50 million.
• Active users hit 1.3 million, a 153% increase.
• Total loan originations rose 57% to reach $3.6 billion.
• Its 90-day loan delinquency ratio remains low at 1.49%.
• Adjusted net income jumped 35% on a 140% increase in sales.
• It now has more than 100 institutional funding partners.
LX operates an online consumer finance platform aimed at young adults in China. More than 90% of LexinFintech’s customers are young, educated, and between the ages of 18 and 36.
This high-growth fintech idea is currently trading at less than 10 times forward earnings projections and based on this and its solid quarter I encourage you to build a position if you have not already done so. BUY.
Luckin Coffee (LK) shares were up 4.5% today to reach 21—within reach of its year high of 26 in late July.
Luckin keeps expanding its fleet of stores, which grew 375% annually to 2,963 locations and it plans to eclipse Starbucks with 4,500 stores by the end of the year.
According to Iyiou’s estimate, Starbucks China sold 400 million cups in 2018, which implies only 311 cups per day per store. Luckin currently operates at 345 orders per store at the day level, an increase of 18% from a year ago and 41% from the previous quarter. Keep in mind that while Taiwan consumes 209 cups of coffee per person each year, China consumes only 6 cups of coffee per person.
This sort of growth comes at a cost as it posted $379 million in operating expenses in the first half of the year while generating $202 million in revenue. It will be a while before the company posts a profit.
The American Funds mutual fund company Capital Group has a 15.6% stake, followed by Singapore’s sovereign wealth fund GIC with 13% and Qatar’s Investment Authority at 8.8%.
If you have not invested in Luckin, which is an aggressive idea that won’t be posting profits for some time, I encourage you to do so up to a half position with a 20% trailing stop loss in place. BUY A HALF.
MakeMyTrip Limited (MMYT) was up 4% this week.
A play on India’s travel industry as well as digital payments and marketing, MakeMyTrip has evolved into a leading travel company as India evolves into a digital marketplace by providing a comprehensive range of travel services.
The company has made key acquisitions and strategic partnerships and a key alliance is with Ctrip, China’s largest online travel group.
If you have not yet done so, I encourage you to take a half position in this India growth stock at the heart of a growth sector. BUY A HALF.
Rakuten (RKUNY) shares had an up and down week. No doubt the delay of six months for the launch of its wireless network is weighing on the shares. If you haven’t yet bought shares, this would be a good time to buy a half position.
Rakuten is a well-diversified conglomerate with tentacles throughout Japan and has plenty of running room for international expansion. Its loyalty membership program is more than 100 million strong and it is Japan’s #1 Internet bank, #1 credit card and one of the country’s leading travel platforms.
Rakuten’s core business is as an Internet sales platform akin to Amazon. The company’s market share in Japan is about 25%.
Rakuten is a growth conglomerate with multiple drivers and a sterling balance sheet with cash and short-term investments worth roughly $12.5 billion. The company booked a 16% increase in revenue during its latest quarter, and the stock is trading at just ten times trailing earnings. BUY A HALF.
Sea Limited (SE) remained in the 31-32 range after hitting a high of 36 a few weeks ago.
Its ‘Free Fire’ survival game is a star performer in Asia.
Sea’s e-commerce platform is doing well as JP Morgan reports that some of their Shopee Mall’s platforms have raised their seller commissions from 1% to 5%. SE benefits from high-growth target markets outside of China in gaming, e-commerce and digital payments, primarily in seven Southeast Asian markets. Its gaming segment is the key driver and the other is e-commerce, which is equally robust.
I have been recommending that we take some profits over the last 3 months and last week moved this stock to a hold. HOLD A HALF.
Tencent (TCEHY) climbed over 44 this week and recently reported solid 20.6% revenue growth for its latest quarter while net profits surged 35%.
Its gaming business, which accounts for 30% of total revenue, was up only 8% but this is a big improvement after three consecutive quarters of negative comparisons.
Tencent has invested in over 700 companies in recent years and many of the most intriguing of these are in overseas entities. It is thought that between 30% and 40% of its investments are in non-Chinese companies.
Tencent has been making a series of investments in India including e-commerce marketplace Flipkart, ride-hailing service Ola, and food-delivery company Swiggy.
Tencent is a great core China/Asia holding and I encourage you to buy a half position at these levels if you have not yet done so. BUY A HALF.
Yandex (YNDX), our most recent recommendation, moved sidewise this week on no news.
The company is overlooked by even sophisticated investors and when they do consider it, they primarily view it as a search engine that has cornered 57% of the Russian market.
This core business is up 20% over the last year and I believe it has room to run, but the market is not recognizing some of the company’s key growth drivers such as Yandex Taxi, a food delivery service, and its (loss making) autonomous driving technology through a partnership with Hyundai.
Founded in October 2011, Yandex Taxi is a technology company that operates a ride-hailing and food technology business in more than 300 cities across Russia, Eastern Europe, Africa and the Middle East. In July 2017, the company signed an agreement with Uber to combine their operations in many of these markets. The company also went into the food delivery business with the purchase of Foodfox in December 2017.
Yandex Taxi revenue grew 117% in the last quarter on a year over year basis. BUY A HALF.
ZTO Express (ZTO) shares were up 4% this week and 12% over the last two weeks supported by a combination of a thaw on the U.S.-China front and a solid quarter as revenue grew 24.6% to $790 million while parcel volume jumped 49% to 3.1 million.
Based in Shanghai, ZTO is one of the largest express delivery companies, not just in China but globally. It offers services to millions of traditional merchants, e-commerce sites, and online sellers using a proprietary tracking system, a state-of-the-art transportation management system, and more than 5,000 trucks, as well as hundreds of business partners. And ZTO serves foreign customers through partnerships with many international express delivery companies. I’m keeping this a hold for now. HOLD A HALF.
Watch List
Baidu (BIDU) shares were up nicely this week to $111. We’ll get interested if it gets back to $100 or lower.
