Business and Finance

Barrons
Date: July 12, 2019

Rupal Bhansali, Ariel Investments Photograph by ioulex

Barron’s recently caught up by phone with the members of our January Roundtable. Here are the latest investment views and stock picks of Rupal Bhansali, chief investment officer, international and global equities, and a portfolio of manager at Ariel Investments in New York. She is also the author of Non-Consensus Investing: Being Right When Everyone Else is Wrong, to be published in October by Columbia University Press.

Barron’s: What lies ahead for investors, Rupal?

Rupal J. Bhansali: The economy and growth stocks are likely to disappoint. It is time to switch from FAANG to MANG.

What is MANG?

MANG includes two stocks I discussed in my 2019 Roundtable presentation—Michelin [ticker: ML.France] and Gilead Sciences [GILD]—plus Ahold Delhaize [ADRNY] and Nokia [NOK], the A and B.

Ah, you’ve developed your own acronym.

That’s correct. The common denominator of these four stocks is that they are generally out of favor, as opposed to the crowded, overvalued stocks of FAANG [ Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix(NFLX), and Google’s parent, Alphabet (GOOGL)]. I’m a contrarian, but more important, I am an intrinsic-value investor and all of the MANGs trade at 10 to 12 times earnings and offer roughly 4%-5% dividend yields.

And they don’t face regulatory threats, either.

Or competitive threats of the sort that Netflix and Apple are likely to face.

Before we delve into the MANG stocks, let’s talk about the big picture. Why do you expect growth to slow?

People underestimate how much China was responsible for world gross domestic product growth over the past decade, and China is running out of options to boost growth. The popular perception is thatthe slowdown in China is due to the tariff war with the U.S.. The actual cause is the huge pullback in credit growth, which the Chinese economy is addicted to. Starting in the middle of 2018, there’s been a 40% pullback, year over year. This comes in the wake of a more-than-fourfold increase in credit growth over the past 10 years, from roughly $9 trillion in the banking system to $41 trillion as of the first quarter. For perspective, the banking sector’s total assets in the U.S. are about $18 trillion, and in Japan, about $10 trillion.    [FULL  STORY]

CNBC
Date: Jul 12, 2019
By: Weizhen Tan@WEIZENT

KEY POINTS

  • Between 2000 and 2017, other countries’ debt owed to China soared ten-fold, from less than $500 billion to more than $5 trillion, according to the study from Germany-based think tank the Kiel Institute for the World Economy.
  • For 50 developing countries which have borrowed from China, that debt has increased on average from less than 1% of their GDP in 2015, to more than 15% in 2017, according to estimates by the study’s researchers.
  • The documentation of China’s lending has been at best “opaque,” the report said, with such transactions “missed even by the most ambitious recent attempts to measure international capital flows.”
Italian Premier Giuseppe Conte meets Chinese President Xi Jinping to sign trade agreements on Belt and Road Initiative, on March 23, 2019 in Rome, Italy.
Antonio Masiello | Getty Images News | Getty Images

Italian Premier Giuseppe Conte meets Chinese President Xi Jinping to sign trade agreements on Belt and Road Initiative, on March 23, 2019 in Rome, Italy.

Antonio Masiello | Getty Images News | Getty Images

China’s lending to other countries has surged in the past decade, causing debt levels to jump dramatically, and as much as half of such debt to developing economies is “hidden,” a new study has found.

Such “hidden” debt means that the borrowing isn’t reported to or recorded by official institutions such as the International Monetary Fund (IMF), the World Bank, or the Paris Club — a group of creditor nations.

Between 2000 and 2017, other countries’ debt owed to China soared ten-fold, from less than $500 billion to more than $5 trillion — or from 1% of global economic output to more than 5%, according to the study from Germany-based think tank the Kiel Institute for the World Economy.

“This has transformed China into the largest official creditor, easily surpassing the IMF or the World Bank,” the report’s researchers said.

The study, which looked at nearly 2,000 Chinese loans to 152 countries from 1949 to 2017, was undertaken by well-known debt expert Carmen Reinhart from Harvard University, as well as Kiel Institute’s Christoph Trebesch and Sebastian Horn.    [FULL  STORY]

CNBC
Date: June 12, 2019
By: Yun Li@YUNLI626

KEY POINTS

  • “It’s a huge deal. I would say if they get implemented and we go to the $500 billion, I think certainly it’s possible it could tip us into recession,” Tudor Jones said in an interview Wednesday on Bloomberg TV.
  • President Donald Trump had threatened to put duties on another $300 billion in Chinese goods if a trade agreement is not reached soon.

Paul Tudor Jones
Photo By: Leanne Miller | CNBC

Hedge fund billionaire Paul Tudor Jones believes the market is underestimating the economic impact of tariffs.

“We’ll really have to see the impact they are going to have and if the next round of tariffs gets implemented. It’s a huge deal. I would say if they get implemented and we go to the $500 billion, I think certainly it’s possible it could tip us into recession,” Tudor Jones said in an interview Wednesday on Bloomberg TV.

“We haven’t seen anything like this in 75 years right? … There’s no playbook for this. You got this interconnected global economy that now all of a sudden for the first time in 75 years we are seeing free trade not being expanded but being diminished … I think it would have a bigger impact economically than what the market thinks,” he added.    [FULL  STORY]

  • CNBC
    May 29 2019
    By: Yun Li@YUNLI626

    KEY POINTS

  • “We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!” the People’s Daily said in a commentary titled “United States, don’t underestimate China’s ability to strike back.”
  • The phrase “Don’t say we didn’t warn you” was only used two other times in history by the People’s Daily — in 1962 before China’s border war with India and ahead of the 1979 China-Vietnam War.
  • China threatened it would cut off rare earth minerals as a countermeasure in the escalated trade battle. The materials are crucial to the production of iPhones, electric vehicles and advanced precision weapons
Chinese President Xi Jinping stands by national flags.
Johannes Eisele | AFP | Getty Images

The biggest Chinese newspaper explicitly warned the U.S. on Wednesday that China would cut off rare earth minerals as a countermeasure in the escalated trade battle, using an expression the publication has only used twice in history, both of which involved full-on wars.

“We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!” the People’s Daily said in a commentary titled “United States, don’t underestimate China’s ability to strike back.” The publication is the official newspaper of the Communist Party of China.

The phrase “Don’t say we didn’t warn you” was only used two other times in history by the People’s Daily — in 1962 before China’s border war with India and ahead of the 1979 China-Vietnam War.

“Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” the paper said.
[FULL  STORY]

Some say Beijing lends money for infrastructure and development to pressure poor countries with debt. Not so.

The New York Times
Date: April 26, 2019
By Deborah Brautigam

WASHINGTON — Representatives from more than 150 countriesbegan to gather in Beijing

Image CreditCreditGolden Cosmos

on Friday for a grand forum to celebrate China’s grand Belt and Road Initiative. Since its formal unveiling in 2013, B.R.I. — a vast, worldwide web of infrastructure-development projects mostly funded or sponsored by the Chinese government — has generated both tremendous enthusiasm and tremendous anxiety.

Some call the colossal program a new Marshall Plan, arguing that it could radically reduce the costs of international trade as well as underpin the economic transformation of poor countries.

Others accuse China of using B.R.I. as a way to flex its economic muscle for political gain on the sly. The whole effort is a cover for “debt-trap diplomacy,” goes one common criticism — or, to borrow from John R. Bolton, the United States national security adviser, China is making “strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.” (Some American Democrats seem to agree with him, at least about this.)

Yes, debt is on the rise in the developing world, and Chinese overseas lending is, for the first time, a part of the story. But a number of us academics who have studied China’s practices in detail have found scant evidence of a pattern indicating that Chinese banks, acting at the government’s behest, are deliberately over-lending or funding loss-making projects to secure strategic advantages for China.  [FULL  STORY]

CNBC
Date:  Apr 13 2019 
By: Fred Kempe

KEY POINTS

  • Chinese President Xi Jinping has strengthened his party’s hold domestically while advancing the country’s influence overseas.
  • Experts believe the country’s current goals suggest China wants to fill America’s shoes as the dominant global agenda setter and rulemaker.
  • If China hits its 2021 targets, it would become 40% larger than the U.S. economy. If it meets its 2049 targets, it will become three times larger.
Chinese President Xi Jinping meets with French President Emmanuel Macron, German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker on the sidelines of a global governance forum co-hosted by China and France in Paris, France, March 26, 2019.Xinhua News Agency | Getty Images

European Union leaders sat down this week in Brussels for a summit with a China it recently branded a “systemic rival, ” and the United States is nearing the end game trade talks with a China that national security documents refer to as a “strategic adversary.”

So, it’s surprising that trans-Atlantic leaders are neither working at common cause nor asking the most crucial geopolitical questions of our age.

What sort of world does China want to create?

With what means would it achieve its aims?

And, what should the United States and Europe do to influence the outcome?

By now, there is little remaining doubt that China’s continued rise marks the most significant geopolitical event shaping the 21st century. Yet U.S. and European officials — mired in issues ranging from Trump administration immigration gyrations to Brexit — have failed to give this mother of all inflection points enough attention.

Some are in denial about the fundamental change China’s rise may bring to the global order of institutions and principles established by the United States and its allies after World War II. Others concede that the structural stress between a rising China and an incumbent United States is the defining danger of our times, yet they offer neither an engagement nor containment strategy worthy of this epochal challenge.    [FULL  STORY]

Tesla , Apple and GE among those who say secrets were stolen

Nikkei Asian Review
Date: April 07, 2019
By: Takashi Kawakami, Nikkei staff writer

GUANGZHOU — A mounting string of allegations from the U.S. paint a damning portrait of how China’s advanced technology sector has rapidly grown due to corporate espionage.

Tesla, the latest to lodge a complaint, said in a lawsuit filed in late March that a former autonomous-driving engineer, Cao Guangzhi, illicitly obtained a trove of source code that he handed over to his new employer, the Chinese electric-vehicle startup Xpeng Motors.

This echoes criminal charges brought by the FBI against ex-Apple employee Zhang Xiaolang last July. Zhang is suspected of leaving the U.S. company with proprietary data on self-driving technology, including a 25-page schematic manual, which he gave to his new bosses at Xpeng. This January, the FBI charged yet another ex-Apple employee, Chen Jizhong, with transferring driverless trade secrets to an unidentified Chinese rival.

These are just a fraction of the corporate espionage cases involving Chinese persons and entities since last summer. In October, a senior Chinese intelligence official was arrested for trying to steal tech secrets from General Electric. The U.S. Justice Department indicted Fujian Jinhua Integrated Circuit in November, and Huawei Technologies in January.    [FULL  STORY]

  • CNBC
    Date: March 4 2019
    By: Arjun Kharpal

    KEY POINTS

  • Huawei would be forced to hand over 5G data to the Chinese government if it was asked for it, because of national security laws, experts told CNBC.
  • China’s National Intelligence Law from 2017 requires organizations and citizens to “support, assist and cooperate with the state intelligence work.”
  • A government spokesperson said that intelligence work should be done “according to the law” and urged people to “not take anything out of context.”
Ren Zhengfei, founder and chief executive officer of Huawei Technologies, left, speaks during an interview at the company’s headquarters in Shenzhen, China, in January.Qilai Shen | Bloomberg | Getty Images

Huawei would have no choice but to hand over network data to the Chinese government if Beijing asked for it, because of espionage and national security laws in the country, experts told CNBC.

Major governments including the United States, Japan and Australia have blocked the Chinese telecommunications equipment maker from providing hardware for next-generation mobile networks known as 5G. The U.S. has said Huawei equipment could provide backdoors for the Chinese government into American networks — a claim the company has repeatedly denied.

Australia did not cite specific countries or companies, but last year it gave guidance to domestic carriers saying that “the involvement of vendors who are likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law, may risk failure by the carrier to adequately protect a 5G network from unauthorized access or interference.”
[FULL  STORY]

Cash-strapped firms are facing a wall of debt due this year. That’s a  problem for industrial companies getting less government help.

Bloomberg
Date: February 24, 2019
By: Anjani Trivedi

I got by with a little help from my friends.

Photographer: Kevin Frayer/Getty Images AsiaPac
Chinese industrial borrowers are strapped for cash, as billions of dollars of debt come due this year. The ones that benefited from Beijing’s largess should be most worried.

Issuers are on the hook for more than 6 trillion yuan 1($890 billion) in 2019, up 15 percent from a year earlier. Companies in sectors including mining and materials, capital goods and real estate make up 4 trillion of the pile – and of that, industrial companies comprise about 60 percent.

 

 

 

 

 

 

 

 

 

For years, this sector largely depended on subsidies to do business, which hampered organic growth. These handouts often show up as lumpy cash, interest-free loans or booked as other operating income. But now the spigots are closing, and these companies are the first to suffer.

With China’s economy sputtering, industrial profits have been dropping in recent months. Constrained financing conditions have squeezed growth and the ability to tap working capital. Cash conversion cycles – a measure of how fast companies are utilizing their inventories and sales to generate cash – are getting longer once again, after peaking in 2016. The largest companies by assets in this sector are running deeper in the red on a free cash flow basis.    [FULL  STORY]

Market update from Crescat Capital’s latest email to investors

ValueWalk
February 23, 2019
By: Jacob Wolinsky

Dear Investors:

There is indeed a business cycle and timing it ahead of key inflection points is key to successful long-term investing. Based on our analysis, we are heading into a bear market in 2019 that will coincide with the start of a global recession that will not be officially acknowledged until well after it began. For the following reasons, we believe September of 2018 marked the essential peak of the US stock market for the current economic cycle:

  1. In 2018, the US stock market historic high valuations across 8 fundamental metrics1;
  2. The technical damage to stocks at the end of last year has altered investor psychology and likely begun a cyclical shift out of stocks from historically high US household allocation to equities that was exceeded only in the tech bubble;
  3. Evidence is building that both China and Europe may already be in recession: industrial production decline in both countries, 2018 Chinese equity bear market, and Chinese manufacturing satellite data show a contraction;
  4. Interest rates across global credit markets are sending signals with uncanny resemblance to past cyclical asset-bubble peaks;
  5. Cross country yield spreads and yield curve inversions are reminiscent of tech and housing bubble peaks;

[FULL  STORY]