A Panda and a Squirrel enter a bar

Recorded 19th March, 2025. Audio-only edition embedded below and also available in the usual ‘Blind Squirrel Macro: The Pod’ podcast feeds.

This is the first of what I hope will be a regular chat between the 🐿️ and Leo on the topic of China and Asia-Pac equities.

Topics Covered

* "Made in China 2025" Scorecard: We note that China has achieved significant success in sectors like electric vehicles, high-speed rail, and renewable energy. However, challenges remain in areas such as commercial aircraft and semiconductors.

"Frankly, they've ticked off most of the boxes. So those sort of naysaying the effectiveness of this type of central economic planning when it comes to China, maybe need to take a little bit of pause." - 🐿️

* Consumption: We analyze recent announcements on boosting consumption in China, emphasizing that the government's approach is not about direct stimulus checks but rather about addressing underlying issues like pension reform and childcare support to encourage spending in a society of savers. The sell side wanted explicit numbers to make their modelling tasks easier. That’s not how it works!

"The real limiting factor for the Chinese spending has never been on the income side. It's always been about the propensity to consume." - 🐼

"These sell side models tend to follow price. We're seeing breakouts in quite a number of sectors right now, so I guess it's just a matter of time before the EPS revisions start to snowball up." - 🐿️

* Capital Allocation and Dividends: We speculate about potential changes in capital allocation strategies among well-capitalized consumer companies. We both see the potential for increased dividend payouts and share buybacks in the beverage sector.

"I think we will see capital allocation noise in these very well capitalized consumer players... They're not exactly the most forward-looking institutions out there, but they will catch up." - 🐼

* 🐿️ wonders whether the 50% short interest in the MSCI China ETF $FXI is all just ‘pod shops’ hedging their ‘rented’ trading positions in Alibaba $BABA triggering a rant from Leo about problems with Chinese equity indices.

Follow Leo’s work by clicking on the image below:

A selection of recent China equity pieces from the 🐿️:

Squirrel out!

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