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The ‘what are you waiting for moment’

November 30, 2022

I am going to talk about Chinese shares in this issue but first I want to write about what I call the ‘what are you waiting for moment’. Many years ago, I bought a big house in London with a friend from school for £12,000. They go for over £2m now. We had half each but then two years later he sold his half to me because he wanted to live in central London whereas the house was in north London. My friend came from a wealthy family which is how I was able to finance these deals. I know, I was very lucky. I put £2,000 of my own money into the deal; my savings from two years in Australia. Mortgages were hard to get in those days unless you had been praying alongside the local building society manager since you were toddlers and I was a journalist. How dodgy can you get? Nobody would lend me money except for my friend’s family.

Younger people don’t realise it but one of the reasons house prices have risen so much is that now you can borrow money to buy them. This was almost impossible when I was young.

I was rattling around in this huge house with four floors and at least six bedrooms. I decided to rent some rooms. I can’t remember the exact sequence of events but before my ad could appear in Time Out magazine offering rooms for rent I had three pretty girls fresh out of Edinburgh University wanting to move in. After some thought I realised that it doesn’t get better than this, my what am I waiting for moment if you like. I cancelled the ads, the girls moved in and that proved a wise decision. We all remember that time in the house as a happy time in our lives. In fact, every one of us married somebody we either met there or met during that period.

You can apply similar thinking to the stock market. When you start to think ‘what am I waiting for’ you are probably about to take a good decision. I don’t have that feeling yet about this stock market but it’s getting closer. The trick is to recognise it when it happens but again I think that most important developments in the stock market are obvious. If it is not obvious it is not happening.

Futu and Pinduoduo look exciting.

My three favourite Chinese shares, all quoted on Nasdaq, are BiliBili, Futu Holdings and Pinduoduo. The one that is not behaving very well is BiliBili. They tried to rally and then lost two thirds of their value in two months although they have clawed some of that back recently helped by positive Q3 2022 results and I am still hopeful of a happy ending.

BiliBili is going through the classic process of shifting from headlong expansion to a more focused, cost conscious approach to growth.

Looking ahead, we will implement a number of additional cost potential measures and further rationalize our marketing expenses and headcount planning. Specifically, we are streamlining our investment in R&D and cutting down on projects with lower chance of success and being extra mindful when exploring new opportunities. At the same time, we are centralizing our resources in areas related to improving commercialization efficiency and user experience. These adjustments will be completed by the end of this year. Accordingly, we expect our sales, marketing and R&D expenses to peak this year and start to decline in 2023 with net loss narrowing further accordingly.

Q3 2022, 29 November 2022

The business is still in growth mode.

Total video views grew by 64pc year-over-year, driven by both PUGV and Story Mode content, which grew by 34pc and over 470pc year-over-year respectively. Particularly with improving content distribution capabilities of Story Mode, content creators can build their fan base more easily, sharing their content with other contract spreads on Bilibili. The various monetization process we have cultivated for content creators continuing to offer more creators, more opportunities to make money while doing things they love. In the third quarter, over 1.2 million content creators under income through multiple channels on Bilibili, up 74pc year-over-year.

Q3 2022, 29 November 2022

This makes sense. BiliBili is a 21st century business operating in the largest marketplace in the world. They should be able to do well and when both chart and fundamentals start pointing in the same direction I think it will be time to buy. If you want to jump the gun and start buying as part of a programme of building a holding that could be a logical thing to do. The valuation has gone from 15 times sales to approaching 1.5 times sales. and the company holds cash and cash equivalents of $3.4bn.

Two Chinese shares I have written about recently are Futu Holdings and Pinduoduo and I have great hopes for these two. Pinduoduo is a Chinese business which is just starting to go international. This is interesting not just for opening a new avenue of growth but also because it should make them a much richer, more insightful business.

We rolled out our international marketplace in September and it has just been a few months since we started this business.

And for our team, the international business is a new area to tour and we will start from the fundamental needs of consumers and apply the operation and supply chain knowhow and experiences that we have gained over the years and strive to create our own unique value.

We fully respect that there are many differences across different markets. And we also understand the need to constantly experiment and we expect that the process will be full of challenges. So we will be patient and work together with our partners to create long-term value for consumers.

Currently, we are still in the early stages of exploration. And we have many areas to improve in terms of the services that we provide. We need to learn and also optimise. The process itself will take time. But I’m pretty certain that, the experience that we gain along the way will be very valuable for our company and also for our team.

Q3 2022, 28 November 2022

There is a tendency at the moment, typical of bear markets, for companies to report good results, the shares jump and then fall back as the excitement fades. Nevertheless Pindudoduo does look as though it is rolling around from bear to bull and could be a share in which to start building a position.

I feel the same about Futu Holdings where I have already commented on the latest good figures and strong balance sheet. The case for Futu seems to me to be very simple and persuasive. If they can do even reasonably well against the background of a raging bear market how well are they going to do in the next bull market.

“Total paying clients grew by 58 thousand to 1.44m, representing a 23.8pc year-over-year growth. New paying clients in Singapore increased by about one-third sequentially as we launched online and offline marketing campaigns around low-risk mutual fund products and expanded client acquisition channels. Paying client growth in the U.S. remained robust as we iterated on online marketing and deepened our collaboration with KOLs. Client acquisition decelerated in Hong Kong due to sluggish equity market performance and limited traction of our promotion of silver bond. Although client growth trended down sequentially, we are encouraged to see that our paying clients were sticky as ever – quarterly paying client retention rate remained above 98pc across all markets.”

Q3 2022, 21 November 2022

Futu has grown its client base from almost nothing to 1.44m in five years, which is what put a rocket under the share price between April 2020 and February 2021.As an online operator in Hong Kong, Singapore and North America, Futu is both well placed to become a global operation and way short of where it could be in client numbers. On top of that as it gains more retail clients it can provide them with more services and gain greater placing power for its corporate clients.

This looks to me like a business with huge potential and I am going to tuck a few away today and maybe do the same for PDD. I have been here before so I will proceed with caution.


Slowly but surely I am feeling more bullish. The politicians and the banks are grasping the nettle of inflation. People are realising that higher taxes are not all bad if they mean lower interest rates now and lower taxes later which hopefully is what Rishi has in mind and similarly Jerome Powell, the US Federal Reserve chairman, who as far as I can tell is the guy responsible for the performance of the US economy. He believes inflation is transitory but has also been using interest rates to make sure that he does not have to eat his words.

Apart from the billionaire wife Powell has a similar golden boy CV to Rishi so no surprise if they think somewhat alike. Even today nothing has really changed. If the Anglo Saxon world can beat inflation we can all rest safely in our beds.

Recessions are tough but they are part of the end game for bear markets like rising unemployment. The classic pattern is cooling economy, falling inflation, lower interest rates, especially at the long end, rising share prices. There is no reason to suppose that is not going to be the pattern again this time and my Coppock indicators tell me that stock markets are going to start discounting this improving scenario early next Spring.

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