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JAN 25, 2024

Is China "BUY" already?

by Meta Investor

And why is crypto down?
Hello, Investors,
This week we explore:
  1. Is China “BUY” already?
  2. Big discounts on crypto - time to panic?
  3. Portfolio updates
I know most of my readers are US residents, so I hope this topic won’t be too sensitive.
Let’s explore it anyway.

Is China “BUY” already?

You probably heard multiple YouTubers talking about stocks of Alibaba or Nio.
Let’s take a step back and take a look at the Chinese market as a whole.
Source: Google
Source: Google
Not only the SSE is attacking the 5-year lows, they are also touching 10-year lows.
All while Chinese GDP has been growing by ~5% on average over the last 10 years.
Source: Trading Economics
Source: Trading Economics
Now let’s take a look at the last chart.
It’s not just the price of the index that’s low, it’s also the relative price to earnings of the companies inside —> the P/E ratio.
Source: MacroMicro
Source: MacroMicro

What’s the catch?

There are still many economic problems in the country and the current situation looks like the beginning of 2008 when things started collapsing in the US.

So why should we care?

When the FED started pouring money into the economy in 2008 (QE = Quantitative Easing), the S&P gained +26.46% the next year.
It doubled in the 6 years after the QE started.
What is doing China now?
Finding ways how to stimulate the economy and put money into it (CNBC, Reuters, Reuters, Bloomberg).

My take

China is a risky market - plus it’s not so much of a “market”.
There is a lot of geopolitical tension associated - especially in Taiwan, but also Middle East.
The US is trying to cut trade ties with the Chinese and this will be a huge topic in the upcoming elections —> followed by some action beginning 2025.
But, China is also covering the growing Asian market.
The companies there have solid businesses and revenues - just take a look at BYD vs. Tesla. Once a joke now a solid challenger.
The risk I see is in selecting individual companies, because I don’t understand the market enough, and we all saw what can happen if the government decides to step in - the story of Jack Ma.
But covering the index, that’s a different story, and with slow accumulation (until we know the stimulus is working, there might be multiple drawbacks in the next months) this is a good area to explore for our portfolios.
If you are against it for political reasons, I understand. Then maybe an alternative - Hong Kong is in a similar situation.
I’m searching for the right way to get exposure to emerging markets (not only China), and this will be part of my DCA strategy for this year.
I expect to send it out in 2 weeks.

Big discounts on crypto - time to panic?

We are bombarded by the news of Grayscale redemptions and huge outflows.
Red numbers everywhere, especially 2 days ago.
I believe 2 factors play an important role:
  1. People who speculated on the GBTC discount are simply taking profits
  2. FTX (and others) are liquidating whatever they can

Factor 1 - Discount to NAV

Back in June 2023, the discount on the GBTC compared to real Bitcoin was 43%.
This attracted many speculators who were hoping they could turn this into profit if Grayscale got the approval to convert into ETF.
They did, and now the reason why these people came in is gone.
Should they keep paying a 1.5% fee or rather take the profit and maybe hold BTC?
Unfortunately, hard to calculate/estimate this number.

Factor 2 - Liquidations

According to CoinDesk, there is only 1 company responsible for nearly half of the GBTC outflows - FTX.
They are not alone, but we have early investors who run into troubles over the period of holding the GBTC shares, and they want/need to liquidate the positions and pay their creditors.
Bonus 3rd factor (just a rotation) - Grayscale is simply too expensive.
They charge a 1.5% fee vs. an average of 0.25% on the other ETFs.
I don’t see any reason why should an investor pay this premium to Grayscale.

My action

I’m buying the dip on Ethereum.
There are still many important events coming later this year.
  • QE is expected in 2nd half of 2024
  • BTC Halving is coming in April
  • ETH ETFs might get approved
I think we haven’t seen the bull yet, and people already started talking about the new bear.
If the market goes further down, I’ll buy more - I’m actually excited about every dip because I still have some portion of my portfolio in cash (high rates = high yields), and I want to accumulate more crypto before the raging bull market full of overnight millionaires.
Side thought: There are new players in the space. Slowly coming in. And these players play a completely different game than the current players.
They play by different rules - they focus on the big picture, covering the market rather than individual projects, but what’s important, they base strategies on numbers and rebalance their portfolios accordingly.
Meaning: BTC might create a significant part of new asset managers’ portfolios, but only as big as the dominance is, and as long as it starts losing it, more money will flow elsewhere.
Just take a look at what happens when a new stock is added to an index, especially an index like the S&P 500.
It’s not bad, most of it we do here at Meta Investor as well.
However, we should pay attention to their actions and see what use cases and narratives they find important.
First of all, they just might end up being (snowball), but understanding where the new liquidity might come can show a few good, low-risk high-return opportunities.
I’ll be adding the SSE index to my monthly Web2 DCA strategy, slowly adding the exposure I want to build to EMs somewhere between 10-15% in 2024.
I’m buying the dip on ETH, plan is to get Eigen points —> through Swell, Etherfi, KelpDAO, and Renzo.
I started exploring BRC20.
While I don’t have strong conviction in the narrative just yet, it’s something new that’s coming and slowly taking over X (Twitter).
And with that, I added a little position in STX and adding weekly a little into STX, RIF, and CFX.
Hong Kong could see BTC ETF in Q1 - Q2 2024 and has 10+ companies lined up for approval (source, source)
  • Venture Smart Financial Holdings is aiming to launch a spot Bitcoin ETF in Q1 of 2024.
  • Hong Kong has a direct stock connect with Shanghai and Shenzhen, which allows Chinese investors to buy international assets.
  • The Chinese government would still need to approve ETFs through these connects, but that marks an important event to keep on your radar.
Ron DeSantis decided to drop the campaign (source)
  • Not much politics, just that he was a supporter of crypto, and I was hoping to see new candidates this year.
Expensive JPEGs are back! (source)
• Bitcoin ordinals-based art piece 'Genesis Cat' Sells for $254,000 at Sotheby's
Reddit to go for IPO (source)
Until next time,
Matt.
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