China's Reopening Is the Single Most Important Macro Development of 2023

I think there's two very important developments that people are sort of brushing over one is china reopening And the other is Most likely japan getting rid of its yield curve controls. Those are like two Huge events that might not I think people know they're there, but they're not fully thinking through them Now ch China's reopening is super important to me Because you have two massive trends two huge shifts and trends are going to be unfolding.

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BIO: Louis-Vincent Gave is the Chief Executive Officer of Gavekal, a Hong Kong-based company he co-founded over 20 years ago with his father, Charles, and Anatole Kaletsky.

STORY: Louis’s father invested one million dollars in a portfolio of 10 Asian companies. Louis was managing this portfolio, whose size was disproportionate to his earnings. He was earning $50,000 annually at the time and had never owned a portfolio this big, which made him sick.

LEARNING: Portfolio sizing matters tremendously. Never under or over-position yourself. Invest with people who have experience.

“Know your own weaknesses and don’t put yourself in a situation that plays to those weaknesses.”

Louis-Vincent Gave

Guest profile

Louis-Vincent Gave is the Chief Executive Officer of Gavekal, a Hong Kong-based company he co-founded over 20 years ago with his father, Charles, and Anatole Kaletsky. Gavekal has grown to become one of the world’s leading independent research providers to institutional investors around the globe. Louis has written seven books. His latest, Avoiding The Punch, published in 2021, deals with the challenges of building resilient portfolios in inflationary times.

The real challenge of venturing into China

Before getting down to Louis’s worst investment ever, he spoke to us about his strategy to build a market for his company in the Chinese market. His company, Gavekal, has operated successfully for over 20 years.

When Louis started Gavekal in Hong Kong in the early 2000s, it was evident that China would be a massive factor in the global economy. There was a huge gap in understanding China’s role in the world and people’s understanding of it. Louis and his father figured they could try to monetize that gap. So they started an independent research firm. It was a macro research firm but with a strong China angle. Louis has tried to build up his expertise in China over the years.

According to Louis, the real challenge in China is always getting a clear picture. Many foreign investors don’t trust the available data.

How to succeed in the Chinese market

Louis says that the important thing for a foreign investor eyeing the Chinese market is to put things into context. You need to relate the economic data and the policy pronouncements to what you hear from corporations.

So when Louis and his father entered the market, they talked to the corporates and policymakers to put together a picture that was as close to the truth as possible.

Worst investment ever

Louis grew up very privileged. His dad had been a very successful money manager and had made much money selling his firm to Alliance capital in the mid-90s. After the sale, he retired. At the time, Louis was in Asia when the Asian crisis hit, and everything went bust. Louis’s dad called and told him he wanted to invest a million dollars in 10 high-quality blue-chip Asian companies. This was in August 1998.

Louis earned $50,000 a year, so managing a one-million-dollar portfolio was a huge deal for him. Between August and October, the portfolio fell by 60%. Louis was literally sick of looking at these positions where, on every individual position, he was losing more than his annual salary. Then between October and December, the market started stabilizing. By March, the portfolio was actually making money. Louis was keen to take it off while it was making money.

Because the portfolio size was so disproportionate to Louis’s earnings, he was not sleeping for days on end.

Lessons learned

Portfolio sizing matters tremendously.
Never under or over-position yourself.
Be clear about what your risk tolerance is on individual positions.
Know yourself as an investor.
Don’t be driven by emotions.
You don’t trade against the market. You trade against yourself.

Andrew’s takeaways

Invest with people who have experience.

Actionable advice

If you’re starting off, start small. Figure out what you’re good at and what you’re not. There’s no magic formula. The most important thing is knowing your weaknesses and not putting yourself in a situation that plays to those weaknesses.

Louis’s recommendations

Louis recommends subscribing to Gavekal’s free newsletter to learn more about investing. He also recommends reading Kevin Muir, who writes The Macro Tourist, to learn how to keep your emotions in check,