Five reasons why I haven’t sold:

Work

This one will likely be irrelevant to everyone except me.

Fortunately or unfortunately, I have lost several of my team to the great resignation. This also means it has been difficult to recruit, meaning my work life balance has been out the window. 80-90 hour weeks when you are working for the man is not a good place to be.

The result is I’ve had zero time to look at the portfolio, and fortunately I guess, it means I have made no irrational sell decisions.

Economic Cycle

The US Fed is tightening monetary policy, concerned about inflation. It has carried out multiple interest rate hike moves and pricing in many more, at least up to 2023. The Fed is also tapering its balance sheet, ending its bond buying program. Higher interest rates will likely lead to reduced investment and lower economic growth stateside.

Conversely, China is at the other end of the economic cycle, stimulating the economy via both fiscal and monetary policy actions. The Chinese central bank, PBOC have not only enacted rate cuts, but it has also carried out lending programs and liquidity injections, unleashing nearly 3T RMB into the system.

The Chinese government also announced 33T RMB in general budget expenditure, loan support via special bonds, and tax and fee cuts for small businesses.

On top of the stimulus mentioned above, Chinese authorities have changed their tune, potentially marking the end of a regulatory crackdown that started with the tech sector in November 2020 when Ant Financial IPO was postponed indefinitely.

Chinese Vice-Premier Liu He has since spoken, making comments such as the government supporting the development of the tech sector and public listings for technology companies.

The Chinese government has also acknowledged that for China to attain its 2022 GDP growth target of 5.5%, the technology sector will have a crucial part to play. Senior management of various companies has also shown optimism about the Chinese economy in 2H22 as the effect of policy actions in 1H22 take effect.

As well as tech, China had a credit crisis in the property sector, with several large developers including Evergrande and Shimao defaulting. After months of silence, Vice Premier Liu He has also since pledged to shore up the real estate sector with measures such as lower interest rates and market friendly policies such as providing loans to encourage merger and acquisitions for developers to acquire distressed assets.

Market Cycle

China has been in a downtrend since February 2021, and many Chinese stocks now have attractive valuations with a potentially positive growth outlook.

It’s worth noting on this point, I am not attempting to pick the bottom, and, China will do what is right for China.

Leaders

Biden and Albo – while the US and Australia are not China’s only trading partners, the change from the previously combative position holders to the new President and Prime Minister could be positive for all three countries.

Reopening

China’s borders and the end of COVID-zero policy coming soon? This is a come once and gone many times call.

There were reports last year of international company manufacturer plants in China operating at zero output. China has narrowed its mass testing scope where cases are detected, reduced its quarantine period for inbound travellers and even allowed key manufacturing sectors to operate in bubbles, to balance between its COVID-zero policy and keeping the economy moving.

The Share price had started to turn around after the US and China had started to work some of their issues out and the sector crackdowns in China had started to settle. However, the recent lockdowns in China (Shanghai) have basically hammered the market especially, when one considers the significance of Shanghai to China. Until the covid situation settles I am not expecting much of a turnaround. It does however, provide a potential opportunity to take a position for those interested in possible turn-around opportunities.

note: I hold

Let me start with...I was wrong. And then say, I took a BIG parcel of this ETF at the time of my last straw some 4 months ago so you will know I am staring at a significant hole.

I am sticking to my guns and not selling even on the back of continually declining market conditions.

The World Bank has lowered its growth forecasts for East Asia to 5% from 5.4% forecast in October, and magically predicted growth could slow to 4% if conditions weaken further, surprising nobody.

The latest outlook reflects a hit following Putin throwing his toys out of the cot, US interest rates on the up and growth slowing in China on the back of Xi controls. Supply chain shocks are not helping impacting either.

Just typing that makes me think I should sell out...but again no. I still think the underlying businesses contained have the ability to deliver decent returns (not in the short but) in the medium term.

The aim of this ETF is “Asian tech tigers” ex Japan. I have written a straw about this before, however, I have been thinking more about Asia recently despite the fact I have not been there in more than 2 years. 

Before 2019 I would have been in Asia at least every second month, sometimes more regularly. Indeed, I had a role with a remit that covered APAC and so it was both an investing and business interest. 

I’ve re-read my previous straw, with one exception. I now think this is a good entry point. 

Don’t get me wrong there are still risks. China is facing headwinds with debt, and with a weighting of ¼ in Taiwan this one is going to see significant downside if tensions there escalate. 

The top 10 holdings are all companies that I would hold if I were not in this ETF - with three already separately held.*

The ETF also holds two of the big Indian IT outsource organisations – Wipro and Infosys. These two companies will continue to be powerhouse of Indian IT services for many years to come. 

One of the other reasons I am becoming more bullish here is the pent-up demand. There remains a global shortage of semiconductors which is having flow on implications for many downstream industries. 

While there may be more regulation coming in China, the shots over the bow from the party have now prepared the local market at least. The Chinese businesses will be prepared if additional regulation comes. 

Xi may want to further regulate elements of online services which have exploded in lockdown. This may further divide the internet for 1.5B people. There are already two internets, and I can see this increasing for the benefit of Chinese businesses that support this. 

*I would NEVER invest in an ETF without looking under the covers. While I appreciate the holdings can change I have looked at some with the immediate reaction of "gawd no". 

18-Oct-2021:  LivewireMarkets.com: Is now the time to be greedy in China? [Angus Kennedy]

I've recently gone rather bearish on Chinese tech, as outlined in my recent Bear Case straw for ASIA, but Angus Kennedy from Livewire Markets presents some alternative views in this piece, which makes for interesting reading.

04-Oct-2021:  I'm getting a bit worried about the extent to which Beijing is attacking their own large tech companies and trying to regulate them to a much greater extent.  With the benefit of a little hindsight and a lot of extra reading, it now seems (since I typed up my "Bull Case" straw for ASIA) that Xi Jinping was not JUST pissed off with Jack Ma's speech back in October when JM criticised the CCP/government for lacking innovation while talking up his financial technology firm Ant Group, which was about to list on the Hong Kong and Shanghai stock markets.  Soon afterwards, Beijing quashed the fintech's public listing, apparently at the behest of President Xi Jinping.  It was a big shock for global investors at the time since Ant, despite its name, was one of the world's largest financial companies, on par with PayPal.  The Ant Group IPO was expected to raise $47.5 billion ($US34.5b) and become the largest initial public offering (IPO) in history.  It is now far from clear if it will ever IPO, or if it does, when, and at what price?

This now goes far beyond Jack Ma and Alibaba (and Ant Group).  Xi Jinping has made it very clear that he want to curb rampant capitalism in China, particularly in big business, and reduce the power and cockiness of the multi-billionaires running China’s largest private companies.

In that light, I think there could be some further near-term and mid-term downside in Chinese-tech-heavy ETFs and funds such as ASIA, and I'm going to step aside from them until the extent of the damage has become far more clear.

I sold out of EAI during September (in RL) and I will be selling my ASIA units out of my SM portfolio here today.  Or tomorrow if I didn't manage to get the sell order into SM before market close (it was close!).

Further Reading:  ABC News: 19-Aug-2021:  China's crackdown on 'powerful' tech giants may be a 'terrible own goal'

This ETF is comprised of tech shares aiming to track the performance of the Technology and Internet Tigers Index (Solactive Asia ex-Japan)

When I last looked in August, the top holdings were Tencent and Alibaba, followed by Taiwan Semiconductor. The Chinese holdings, Tencent and Alibaba have slid to third and fourth place respectively, behind Taiwan Semiconductor and Samsung now in the top two slots. While I haven’t confirmed, I suspect this is not related to weighting changes, rather it has been the decline in the two Chinese companies.

The ETF ran hard following 2020 declines but has seen a slide this year in line with the Chinese market. President Xi Jinping recent actions have rattled investors.

The government changes have been well documented - the list includes regulations on delivery services, crackdown on education to make these companies not for profit, and technology companies with more than 1 million users jump through security reviews before offshore listings are approved. All up, this is China driving towards common prosperity.

A legacy of ideology and political culture influences Chinese decisions where history is deeply entrenched. Common prosperity is a political campaign to secure Xi Jinping future at the 20th Party Congress next year by reassertion of the power of the Communist Party of China. We have already seen this in the empowerment of the Party within state-owned enterprises and private firms as touched on above.

China’s private sector provides over half the tax revenue, more than 60% percent of GDP, and almost three quarters of all technology innovation. Private sectors also contribute most of the urban employment and listed companies. The rise of the market has delivered a similar outcome to other nations, a growing income and wealth gap, with the wealthiest owning over 30% of the country’s wealth.

China now also has a middle class 15x the population of Australia which will number half a billion in less than 5 years. There are more than half a billion still living in poverty combined with a growing problem of weakening demand as the population rapidly ages. There is a need now more than ever a need to increase the size of the pie and slice it more fairly, which is exactly where the market comes in.

Xi Jinping is likely to cause further distress as things are changed through regulation of markets, as well as existing monopolies and state-owned enterprises. There will likely be significant changes to both tax and income transfer, both places where China currently lags, while maintaining, and reinforcing the culture of social responsibility.

It’s always easy on a whiteboard. This may be much more difficult in execution.

While this may seem to be far removed from the Asia ETF, my view is the current challenges in the Chinese market are more likely to be temporary rather than structural. The ETF also is not exclusively China focused either. Does this mean it is a good entry point? 

@Bear77

If you're after semiconductor exposure there is a new ETF, ticker code SEMI. I have sold out of my ASIA holdings and rolled them into SEMI. 

I do not currently hold ASIA, although I think the ETF is getting very interesting at current levels.  I do hold the Ellerston Asian Investments (EAI) LIC, which I mostly bought because I liked Mary Manning as their PM (portfolio manager), and even though Mary has now left Ellerston, I continue to hold EAI.  I'm encouraged by EAI's recent communication about their plans to close the gap between their NTA and their SP.  They would likely be feeling a little scared I imagine about Geoff Wilson's new LIC, WAM Strategic Value (ASX: WAR), which is buying significant stakes in underperforming LICs and/or LICs with big discounts-to-NTA/NAV in their SPs (share prices).  Geoff will often end up trying to take over the management of LICs that he has a significant stake in, or else getting their board rolled and replaced with people that he has nominated.  He has a pretty good success rate too.  Therefore, people who are the PMs or are on the board of these LICs are facing the possibility of losing their own jobs at some point if they don't do a good enough job.  My view with PAI is that the upside from here looks better than the downside, so on balance they still look like a good investment.

However, back to ASIA, which is not a LIC.  ASIA is a active ETF, so an ETF with active management where they have chosen Asian companies to invest in based on certain criteria, much of which (as I understand it) has to do with company growth and size, as well as the industries that they operate in.  They invest in larger companies that are growing fast and have structural and industry tailwinds.

On what has happened since the Ant Group (/Ant Financial) IPO (from Jack Ma's Alibaba Group) got shut down in early November 2020 by the Chinese Central Government, and the associated fall in the share prices of fast growing Chinese companies like Alibaba and Tencent, which has obviously translated into the unit price of ASIA falling, my thoughts are that the Chinese Central Government (CCG) do not like Chinese businessmen getting too powerful to the point where they feel they can criticise the Government or the Party, or to question their policies, as Jack Ma did just before the Ant Group IPO was scheduled to occur (and was halted by the CCG). 

However, the Chinese Central Government (CCG) do want to have very successful Chinese tech companies, and I expect they also want them to be more successful than their US counterparts.  They also want people from outside of China to invest in those Chinese companies and in China.  For those reasons, I feel that this perceived "crackdown" is temporary and is really a lesson to people like Jack Ma that no matter how rich and successful you are, you are NOT more powerful than the Government, and you do NOT question the policies of the Government.  I note that Jack has said NOTHING publicly (or very little) since that speech, so I feel that he did get the message.  I do not know if Alibaba (BABA) is going to be able to spin out Ant Group or not in the future, but regardless of that I feel that companies like Alibaba and Tencent are going to keep growing and their share prices are going to recover.  

LICs like EAI and PAI and ETFs like ASIA are all holding other companies also, like TSMC - Taiwan Semiconductor Manufacturing Company - which is one of the top 5 positions in all of those ETFs and LICs.  TSMC is ideally placed to benefit from the global shortage of semiconductors and other computer parts that currently exists.  They also have strong tailwinds of IoT (the Internet of Things), AI, continued automation and digitalisation, plus cloud computing.

In the case of the ASIA ETF, TSMC (which ASIA just call TSM) is their largest portfolio position, representing 11.06% of the fund.  At 31-July-2021, ASIA's top 10 positions were:

1. TSMC (11.06% of the portfolio), 
2. Samsung was their second largest holding (at 10.65%), then 
3. Alibaba (10.17%), 
4. Tencent (9.33%), 
5. Meituan (Meituan-Dianping) 5.85%), 
6. Sea (4.82%), 
7. Infosys (HQ'd in Bengaluru, India, 4.55%), 
8. JD.com (4.36%), 
9. Pinduoduo (3.91%), and 
10. NetEase (3.35%) was ASIA's 10th largest position.  NetEase has a huge gaming presence in China, however they do more than just games - see here:  Investor FAQs | NetEase, Inc. (gcs-web.com).

Those 10 positions represented 68% of the value of the entire ASIA fund, so their other 40 positions added up to only 32% of the fund.  They held 50 positions altogether.

So, to summarise, I think that weakness in an ETF like ASIA is temporary, not structural, and I think the share prices of the companies that ASIA (and LICs like EAI and PAI) hold will recover.  They might not ALL recover to the same extent, but most will recover and go on to higher levels than before the pullback, and ASIA will return to its growth trajectory. 

So I'm saying that the returns that the ASIA ETF have produced in prior years are certainly achievable again in future years, once the fear around the recent actions taken by the Chinese Central Government (CCG) to reign in their largest and most successful companies and their bosses has subsided.  My thoughts are that the moves made by the CCG were aimed at those company bosses and were not specifically designed to inhibit the growth and/or success of the companies themselves.  It is all about reminding everyone that nobody is above the CCG or exempt from their policies and expectations.

On the official CCG website (www.gov.cn) - Gov.cn: The Chinese Central Government's Official Web Portal (www.gov.cn) - the lead story today is titled, China marks 60th birthday of Xinjiang Production and Construction Corps and has a picture with the following caption: "China will allow all forms of capital to equally compete in the financial market through ease of market access, Chinese Premier Li Keqiang said on Friday."

I feel that China is keen to calm fears that doing business in China is difficult and risky, and I also feel that they want their own companies to succeed as much as possible in the global market.  In that light I think the recent period is temporary, not structural, and I feel that the weakness in the ASIA ETF on the back of the weakness in many Chinese companies' stock prices, is an opportunity rather than a serious red flag.

As things are right now, the ASIA ETF unit price is back at the same level they were at one year ago, but still well above levels achieved in prior years.  I see this as a good entry level actually, and I'll be looking at adding some ASIA to my portfolios during the coming week.

Tencent reported a 29% rise in second quarter profits. The Chinese gaming and social media giant said Wednesday that revenue jumped 20% to 138.3 billion yuan ($21.3 billion) for the three months ended June, compared to the same period last year, while profit rose to 42.6 billion yuan ($6.6 billion).

Update on Tech Anti-Trust regulations for big tech in China.

Following my ASIA ETF rant last night. You will see the regulators continue to work on cleaning up the industry. Seems fair enough to me. 

News Release: CNN

The rules announced Tuesday would forbid business operators from faking statistics or information about their product orders, sales and user reviews to mislead customers. They would also be banned from fabricating consumer views to hurt the reputations of their rivals. 

Other practices targeted include using data, algorithms or other means to redirect web traffic from their rivals or create obstacles that would prevent customers from installing or running rival services.

SAMR said the rules are intended to stamp out "unfair competition."

The regulator also proposed banning a practice known as "choosing one from two," in which companies make exclusive agreements with merchants that prevent them from selling on rival e-commerce platforms. SAMR investigated Alibaba (BABA) over such issues earlier this year, eventually slapping the company with a record $2.8 billion penalty.

Reference: CNN

Summary: Hopefully, this gives a bit more clarity into what's actually taking place. As opposed to some of the over dramatised media reports. 

Disclaimer: I was a buyer today on strawman and hold in my personal account. My thoughts are this is a quality ETF at a discount! The risk adverse might wish to wait until things settle down if you are interested in buying in alternatively if your into $$$ cost averaging then...

An article from Beteshares (probably a bit of marketing) explaining why ASIA ETF has been struggling recently. As mentioned in my previous straw there is a regularory risk in China atm. But it's good to learn a broader perspective, e.g. around diversifcation in this ETF to othe geographies and impacts of the current issues with the global supply chain on some of the companies which are part of this ETF: 

"China aside, it should be noted that 50% the ASIA’s ETF exposure is currently in companies outside of China, with South Korea and Taiwan companies accounting for almost a further 40%. Indeed, the top two companies in the ASIA ETF at present are Taiwan Semiconductor Manufacturing and Samsung Electronics, with recent share price performance of these companies also being negatively affected in recent months by lingering global supply bottlenecks, especially with regard to semiconductors." 

More here 

https://www.betashares.com.au/insights/will-china-kill-its-golden-geese-a-deep-dive-into-the-betashares-asia-technology-tigers-etf-asia/?utm_source=marketo_email&utm_medium=email&utm_campaign=bs&utm_content=newsletter-position1&mkt_tok=NDQyLVdISi0yMDQAAAF-rk3vSP8VofRRxLV1tBPJcAJ0SckJ1HGudfqaRqO6NRYDM7zfzUuJaBJteV2Q8Th_lJH_qmw-LsoAWOw92iNKMdp6_YpLjNh2lQhGxvx9ffIk

From the Economist this morning...

The share price of Tencent, one of China’s tech behemoths, plunged after a state-run newspaper lambasted computer gaming as “spiritual opium”. The Economic Information Daily later deleted its story, but investors worry that gaming could become the latest front in the Chinese Communist Party’s crackdown against China’s big tech firms, which it fears are becoming too influential.

Added to ASIA in my RL portfolio yesterday.

Simply put these businesses generate huge amounts of free cashflow & are trading for cheaper multiples than they have historically (in a time where many stocks look expensive). Yes the regulatory issues & risks are there but these businesses are powerhouses. BABA for example generated 70% more revenue than Amazon. I think we'll look back at this moment in a few months and think what a great buying opportunity. I guess time will tell.

The contrarian opinion

I think there’s a really interesting story here. Being primarily a small and macro cap investor, I don’t tend to get too moved by the bigger macro factors, but anything that turns the needle of an index fund more than 15% in a few days will get me curious.

At a high level, the story starts with investors fearing more regulatory crackdown by the Chinese government. This is on the back of a new set of restrictions on Chinese tutoring companies such as New Oriental Education & Technology and TAL Education Group (who have now had most of their market value wiped out in two sessions.)

So now we’re thinking; well, how far will this go? Will the government prevent more sectors from making profits? Will the big margins of some of these tech companies get them interested to crackdown on big tech and stop them from continue to make eye-watering returns?

Given the actions of the Chinese government has been nearly impossible to predict (how they’re dealing with crypto is another interesting story that exemplifies this), this fear is certainly not unfounded.

I think the contrarian opinion worth considering here is this:

It’s one thing to stop private education from making a profit; education is often largely a government services in many countries. But given the amount of dependency the population has on these big tech giants, would it be even feasible to stop them?

Turning this into something a little more tangible, if we take the biggest holding in this portfolio, which happens to be Alibaba; the numbers are staggering and speaks to the mission it would be to stop such a Juggernaut. They made 717.29B in revenue last year, that’s 70% more than Amazon made last year. On a balance sheet perspective, Alibaba looks strong; While they have 179.91B in debt, 483.45B in cash. That’s a lot of coverage for a rainy day.

Looking into a lot of the Top 10 holdings, I find similar patterns; massive companies, but still with attractive growth, stable balance sheets, and the recent selldown prices them pretty attractively.

I thought it would be valuable to share this perspective for those with a healthy risk for appetite who like to compliment their local small and macro caps with some international ETFs.

An interesting article about the regulatory risk around Chinese companies and why their value has been going down recently

https://www.afr.com/companies/financial-services/why-xi-jinping-is-making-investors-very-nervous-20210727-p58d8h

06-Mar-2021:  The BetaShares Asia Technology Tigers ETF (ASX: ASIA), as Strawman discussed in his weekly email, sent out earlier today, is a simple and inexpensive way to get exposure to fast growing Asian companies like Samsung Electronics, Taiwan Semiconductor, Tencent, Alibaba, Meituan, Pinduoduo, JD.com, NetEase, Infosys and Sea (those companies are their current top 10 positions). 

The management fee is 0.57% p.a. and their expenses are running at around 0.10% p.a. - for a total of around 0.67% in fees and costs per annum.

I do not hold ASIA shares (the ETF), having previously preferred Platinum's Asia Investments LIC (PAI), and currently I hold shares in EAI: the Ellerston Asian Investments LIC, whose portfolio manager (PM) is Mary Manning, who has previously worked for George Soros and then for Howard Marks' Oaktree Capital in New York and Singapore.  In Singapore, she was the sole person responsible for financial sector investments for Oaktree's Global Emerging Markets Hedge Fund.  I prefer that active management that I get with EAI, because I am NOT an expert on Asian companies and I like my Asian company exposure to be managed by somebody who clearly is.  However, it is worth noting that active management comes at a price.  EAI charge around 0.82% p.a. in management fees (average) plus a 15% performance fee.  You do NOT pay performance fees on ETFs.  If EAI interests you, you can check out their 31-Dec-2020 holdings (all of them in alphabetical order) here, and their latest (January 2020) newsletter here.

Something worth noting, and it becomes obvious when you look at the performance summary near the top of page 1 of that January newsletter, is that EAI's returns after fees and expenses (but before tax) have underperformed their benchmark index over the past year by -0.46% (around half of one per cent), with that benchmark being the MSCI Asia ex Japan (non-accumulation) (AUD) index, and they've also underperformed that index by -0.48% p.a. since inception.  Over three years however, EAI have outperformed the index by 1.85% p.a.  That suggests that over the past year, and over the longer term, you may have been better off in an index-hugging ETF, as long as their fees totalled less than 0.46% p.a.  However, such an ETF - with fees & expenses that low - does not seem to exist.  Asian ETFs all appear to have higher expense ratios than domestic or US focussed ETFs due to the higher cost of investing in Asian markets.  For example, the iShares MSCI All Country Asia ex Japan ETF (AAXJ, only available in the US) has an expense ratio of 0.70% p.a.

Our closest Australian equivalent appears to be ASIA, the Betashares Asia Technology Tigers ETF which enables holders to "Gain exposure to the 50 largest Asian technology companies (ex-Japan) in a single ASX trade" - which has total management costs (management fee plus expenses) of 0.67% p.a.   

The other thing to note is that while there is no active stock picking involved in ASIA (the ETF), there is a technology filter.  All non-tech companies are excluded, and then they buy the 50 largest tech companies across Asia (ex-Japan).  Their current geographic exposures are:

• China: 55.0%
• Taiwan: 21.4%
• South Korea: 18.1%
• India: 4.9%
• Hong Kong: 0.2%
• Other: 0.4%
• Total:  100%

And their sector exposure as of 29-Jan-2021 is:

• Internet & Direct Marketing Retail: 28.2%
• Semiconductors: 18.8%
• Interactive Media & Services: 17.8%
• Technology Hardware, Storage & Peripherals: 13.9%
• Interactive Home Entertainment: 8.2%
• IT Consulting & Other Services: 5.3%
• Electronic Manufacturing Services: 2.3%
• Movies & Entertainment: 1.1%
• Semiconductor Equipment: 0.9%
• Other: 3.5%
• Total:  100%

Click here for their fact sheet, and here for their website.

06-Mar-2021:  The following graphic concerns the ASIA ETF's sector allocation and geographic exposures.  For more, you can view the whole fact sheet here.