China’s Economic Challenges and Investing at All Time Highs

[00:00:00] This is the Canadian Investor, where you take control of your own portfolio and gain the

[00:00:06] confidence you need to succeed in the markets.

[00:00:10] Hosted by Braden Dennis and Simon Belanger.

[00:00:15] The Canadian Investor Podcast, welcome into the show.

[00:00:18] My name is Braden Dennis, as always joined by the IT consultant extraordinaire, Simon

[00:00:25] Belanger. but then I just got this new MacBook with the M2 Pro chip and the charging is back to the magnetic one, not the USB-C. Oh yeah. So I don't know what is going on here, man. It's been my MacBook is the same, so I don't know. I just, I thought it was always like that because it was my first MacBook Pro,

[00:01:41] but it's still the magnet.

[00:01:42] I have the magnet too, yeah.

[00:01:43] You got the magnet?

[00:01:44] Yeah.

[00:01:45] Because my other Pro was the USB-C,

[00:01:47] which was nice because No alcohol. And then now I'm doing five days a week working out right now, but dude, it is so much more fun when you like do sports in the mix. So like I got like flag football on Thursdays,

[00:03:01] you know, rock climbing tonight.

[00:03:03] I've realized that that just makes us so much more

[00:03:05] easier to stay fit. and learning and probing and asking questions because you're kind of more looped in on the geopolitical stuff. Yeah, yeah. But it feels to me there is very little confidence from the international and US capital that's just completely flown out of there. The ETF inflows to these China-based equity ETFs

[00:04:21] has dropped off a cliff

[00:04:23] and some of them have completely disbanded and pulled out.

[00:04:26] What is happening? publishing it. So just things like that that you have to take into account. Any time a metric is stopped reporting is like typically a red flag. This goes for companies too. We do. Yeah. Dude, I want to start like a systematic trading thing with the FinChad data on companies that change reporting or stop reporting a core KPI. They're just like, oh, we don't want investors to be

[00:05:43] focusing on that anymore. Pivot. Yeah. Well, wanted to shift what investors were looking at. That's right. I totally agree. This happens with almost every company that doesn't change segments. The only company that I can think of that has lasted the tale of time of being public

[00:07:01] for decades upon decades and their segments never change and are just dialed in. going over how it works, just reach out to us on Twitter or email and we'll happily direct you to that episode. Sovereign wealth funds, so sovereign wealth funds in China, those based in China is actually, they're buying up ETF shares to boost the Chinese stock market. And there's a lot of reasons why the Chinese stock market hasn't performed well in the

[00:08:21] last five years.

[00:08:22] Clearly, there's been a shift in terms of free market and government intervention in

[00:08:27] the economy and in business. The money is with the bank that you're dealing with in China and they won't let you get that money back out to Canada or the US. That's a very basic example, but that's what capital controls it. That's a big reason why investors like investing in the US. There are some counter arguments to that as well, but because the capital controls, they're

[00:09:43] much lesser or not revenue in Chinese yen. Okay, let's throw it in USD here.

[00:11:00] The business basically up until like the Q3, Q4 of 2021

[00:12:06] to that, this was a runaway freight train in terms of growth. And so beyond just the narrative, the metrics are not as bad as the story, but they do show how this change in

[00:12:16] the way that these companies operate and how the government's going to interact with them

[00:12:21] is directly resulting in financial results for these companies as well. So it's a bit

[00:12:26] of a double whammy. doesn't want something, but it just goes to show they can really take action that will adversely affect especially foreign investors. That's right. I mean, Xi Jinping, didn't he change it so he's in power for life no matter what? Correct me if I'm wrong. There was Canadian investor podcast listeners, the Globe is offering unrestricted access to GlobeandMail.com for just $1.99 per week for your first 52 weeks plus tax. Invest in you with this incredible offer. Visit TGAM. So a lot of people have been saying, oh, you know, they can always do a big stimulus package. Well, the issue is that there could be some pretty severe consequences because of that. And the fact that foreign direct investment as like rapidly decline is putting a lot of pressure on the Chinese economy. The third one here is the population decline.

[00:16:22] So that made headlines, I didn't realize that it started all the way back then.

[00:17:40] Yeah, and the issue with it too is it just, you know, it's been gone almost for a decade

[00:17:45] now but it's the behavior an economic perspective not a great thing to see your population level out. And the Chinese real estate problem is probably the one Chinese people for the most part. What happens to the companies that are owed money by Evergrande? It looks like for now it looks like they'll try to

[00:20:22] keep the operations going but for how long will creditors just ask for liquidation of all the talking about someone who's independent, independent but also manages their business well, has experience in this. You can count on them to complete projects, make a bit of a profit because obviously- It's like a high quality employee. Yeah, yeah. So it's a high quality business, right?

[00:21:41] To me that's kind of the implied truth

[00:21:44] about a high quality developer.

[00:21:45] But I thought that was fascinating. I watched a YouTube video the day of this guy who was traveling through mainland China, showing off all these unbelievably high tech cities that just like randomly have the population of like Toronto times two that you've never heard of. There's all these like city centers that you've never heard of in your life if you're not familiar with the country that are gigantic populations.

[00:23:03] And then there's all these really cool dependent on that for sources of revenue. I don't know like the intricacies like exactly how it worked but I know there's a relationship there and'll mention here to show that there are signs that things are not going well. So the People's Bank of China, so the PBOC, announced a few weeks ago, so they're the central bank over there, that the RR rate, so triple R compare the CSI 300 if you want an ETF that tracks it it's ASHR and you'll really see that it's not it's not great I mean it's it's completely trailed the S&P 500 it's been in a massive drawdown over the last couple of years and

[00:27:01] I think it just shows because there's a lot of

[00:28:24] risks. It's not just one thing, there's a lot of risk. For me, it look like slam dunk opportunities. You factor in all these other things and you question value trap. The answer is I just don't know and I just don't care to opine on it anymore with the equities. I used to have a hot take on them being critically undervalued and now I've just realized that

[00:29:40] I don't know.

[00:29:41] Well, there's still more undervalued than they were dense.

[00:29:45] I know, I know.

[00:29:46] Exactly.

[00:29:47] That's a crazy thing.

[00:29:48] Yeah. a lot more than both of us about this stuff. And maybe you're in a better position to have a particularly hot take. We appreciate you. Thank you for listening. And there's a really good chance you're listening to this and thinking, I know what I'm talking about this stuff. Good, like perfect. Like you're in a position to make better decisions and go with what you know here is like the

[00:31:04] number one thing with investing.

[00:31:07] It's just like whatever can see what's happening. And I think that's valuable. Yes, it's maybe more anecdotal, but I think that's also some very valuable information. If that's something that interests you to invest in Chinese equity, is gather information from all the various places that you can. Yeah. And build conviction in a way that makes sense, right?

[00:32:21] Like there are the ways that we get this news in media

[00:33:23] globinmail.com for just a $1.99 per week for your first 52 weeks plus tax.

[00:33:25] Invest in you with this incredible offer.

[00:33:28] Visit TGAM, so that's the globinmail,

[00:33:32] TGAM.ca forward slash TCI for complete details

[00:33:38] of this offer for our listeners.

[00:33:40] Let's talk about all time highs, Cion.

[00:33:43] I'm just looking at time any of a hard stop

[00:33:45] in like 30 minutes.

[00:33:46] We'll do this segment. when you just think about it for a second, just a cost is prohibitive right now for a lot of people. So they'll have to come out with a more affordable version. When is that version coming out? And then when that more affordable version comes out, then they also have to give it time for adoption, making sure developers go on this new platform, because I'm sure the apps will be different

[00:35:00] than the laptops, than on your iPhone.

[00:35:03] So I just think five years is going to be a digital workspace. I think that that's, that's inevitable. And Apple's just in a good position to be able to capture that because they already own the ecosystem when it comes to the hardware and the tech and Microsoft also

[00:36:20] as well, I just don't have any confidence that they can build hardware like Microsoft,

[00:36:25] like Apple can.

[00:37:26] have something that does very similar in terms of productivity. Sure, it might be a little increment, but to me, my MacBook Pro, I have no desire to dish out with like 4 grand Canadian,

[00:37:33] 4,500. I don't know what the cost is, 3,500 USD. Is that the price? Yeah.

[00:37:39] I think that's the price, yeah. So that's probably the perspective I take,

[00:37:43] but maybe in the next upgrade cycle, this can also be true that a company stock can trade at all time highs and be at its least attractive investment opportunity. Think like cannabis 2018 versus at its most attractive opportunity of, you know,

[00:39:02] maybe one of the big techs in 2012 And up big, all time high in 07, again in 08. Stock hits $100 per share, the B class. The great financial crisis happens, the stock doesn't recover, trades flat basically till 2013, the stock rips, moves to all time highs. Wow, Berkshire's at all time highs again.

[00:40:22] It then proceeded to make all time high,

[00:40:24] see mom, in 2014, 15, 16, 17, 18, 19, 20, 21?

[00:41:42] I've seen pundits mention that you should right the worst dogs dad Hit all-time high and evaluations were absolutely crazy like in hindsight I should have sold all my Teladoc stock at the time obviously inside is 2020 But now I'm more aware of this and if I do see kind of a big run-up

[00:43:04] It won't be because it's called Loud Budgeting. So it's been making the rounds and it's a new trend apparently on TikTok that is really catching on. So have you ever heard of this?

[00:44:21] No, but I mean we were gonna do this last time

[00:44:23] and we were here on the pod and Loud,

[00:44:26] you just caught me at TikTok that people are making TikToks. for it and most people will be very understanding and to be honest if they're an odd then, you know, probably worth rethinking. You and your friends. Yeah, exactly. Probably worth rethinking your friendship with them if they're your friends but. Can I just jump in there? I love this and when people say this, like, you know, just are open and honest about like,

[00:45:41] hey guys, this sounds really fun but, you know, like I'm in a cash crunch right now

[00:45:45] or like I'm really trying to save money, the Riverside, you did the thumbs up. You weren't doing the thumbs up either. It just did it on its own. So it's... No, it happens when you count. So I'm a big like... Okay, big counter. I do like a 0.1, 0.2, 0.3.

[00:47:03] But no, but it's true exactly. I mean, honestly, if my opinion here is that, you know, like if you if your friends giving you a hard time, like I said, it's probably worth considering that friendship. But even if you think that someone has plenty of money, they might not. So I think that's important for people to remember because we live in a society where

[00:48:21] a lot of people, you know, they'll see someone and they'll see a nice car, for example, and

[00:48:26] they'll think automatically automatically they're rich. Maybe they are, but there's a chance they're not that they're just using way too much credit.

[00:49:40] Maybe they're using just enough credit.

[00:49:42] I'm not saying that they are necessarily.

[00:49:44] And it's the same are just being extended. And my whole point, the car example here is that, you know, a lot of Canadians are indebted and it was more to show that sometimes trying to keep up with the Joneses or your friend that you think is rich is really trying to keep up with a friend that has a lot of debt and perception is just perception.

[00:51:01] And it might be close to reality for some

[00:51:04] but might be way off for others.

[00:51:06] So just keep that in mind I don't have any payments on this car. And I think it's just being comfortable with yourself. And I know it's more of a, you know, it relates maybe a little less investing, but I think it still does because if you're comfortable with yourself and you're not spending money on trying to impress others, it's more money that you get to invest in yourself.

[00:52:20] So whether it's investing and being able to grow your income

[00:52:23] because you're learning new things,

[00:52:25] or it's investing by kind of muscle car, the 60s, 70s cars, or there's certain type of car you're just passionate about, and I know some people, they're really passionate about that, then have added. You'll just have to make sure that, you know, you allocate a reasonable amount of money to your, you know, from your budget

[00:53:40] there, and that's completely fine. But, you know, as I get immense value and happiness out of. I don't care what I show up in. I really don't care. I mean, of course I want like a nice respectable, like I'm not shy. I don't want to show up in the field. I wanted the cart to be reliable.

[00:55:00] Yeah.

[00:55:00] I just wanted it to be reliable and get me point A to point B and be safe.

[00:55:04] That's it.

[00:55:05] Those are my three criteria for a cart.

[00:55:07] That's it.

[00:56:02] You gotta grind, you gotta grind at winners, dude. It lasts me about five years, so it's okay.

[00:56:05] I feel like the cost per year is pretty good.

[00:56:07] What does?

[00:56:07] Lulu, Lulu, I like it.

[00:56:08] Oh, yeah, pants, I'm Lulu only.

[00:56:11] Have you seen the shoes, the Lulu shoes?

[00:56:13] Have you seen them?

[00:56:14] Yeah, I've seen them.

[00:56:15] The men's ones, they just came out with the men's ones.

[00:56:17] They've had the women's shoes for probably close

[00:56:20] to a better part of a year.

[00:56:22] The men's shoes, if you haven't looked them up yet,

[00:56:24] and you're listening to the show,