Xi’s China is starting to realize that it cannot crack down more. The property bubble has burst and there is no easy fix to it. China is trying to muddle through this. Consumer confidence is low, especially youth unemployment is rising. Demand for its factories is low due to economic headwinds in export markets. A sector Xi dislikes, but now needs is the tech sector with its platform companies. Innovation, employment, much needed growth can all come from the space he reigned in. China is now talking the private sector up and billionaires are daring to publicly show support. Valuations are relatively low vs the U.S. peer, positioning will add to the contrarian appeal. I do think risk-reward is appealing – and if you worry about China attacking Taiwan, I do think we will have much bigger things to worry about if that happens. Talking youth unemployment in China, this has a massive read for the aspirational consumer and the luxury sector. China’s youth unemployment sits at >21% now, a record high. China’s luxury consumers are on average 28 years old according to BCG, this might now be a headwind rather than a tailwind for the space. – But what to buy when you sell the luxury sector? Bond proxies is my view. With inflation and rates peaking and still a recession looming, long duration has already started to benefit. A company with close to 10% div yield in USD, a potential buyback and from being ex growth becoming a growth company has been put on the radar for me. British American Tobacco. New management will present next week btw. Today the SA central banks (SARB) will make a decision, likely raise by 25 bps. The last hike and this is getting some amongst us excited. I do think that the SA consumer is under pressure that she has never faced before in recent history. Add that loadshedding is not a thing of the past, add that there are now structural headwinds for PGM demand (electric vehicles), add that China’s commodity hunger is slowing, add that the world is slowing down and add that there is enormous uncertainty going into next year’s election year – I remain someone who prefers a stock that pays me 10% in USD and has enormous optionality at 6x P/E vs. some peer at 14x. I’m forever puffing bubbles, puffing bubbles in the air, they fly so high, they reach the sky….
