Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: Hello from Hong Kong and welcome to Under the Banyan Tree.
Speaker: I'm Fred Newman, Chief Asia Economist at HSBC.
Speaker: And I'm Harold Vindelina, Head of Asian Equity Strategy.
Speaker: Good to have you with us.
Speaker: We're going to have some fun on the podcast today, bringing you some quirky facts and figures on Asian equity markets.
Speaker: And of course, we'll do what we do best, ramble on around those facts, putting Asian markets and economics in context.
Speaker: Indeed, Harold, you and your team have been gathering these fascinating stats together, and I have to say some of them really took me by surprise as I went through your latest Flying Dutchman report.
Speaker: Hopefully, our audience will be equally as surprised.
Speaker: So let's dive right in.
Speaker: From HSBC Global Research, you're listening to Under the Banyan Tree.
Speaker: So Harold, very excited to see the latest installment of your Flying Dutchman series.
Speaker: I think you've been producing this for well over a decade now.
Speaker: Yeah, something like maybe 15 years or so.
Speaker: Exactly.
Speaker: Of course, it's one of the flagship publications that you put out on Asian equity strategy.
Speaker: And the latest one caught my eye because it has some interesting facts in it.
Speaker: That is a collection of very interesting statistics that you put together.
Speaker: And I think we wanted to go through some of these in the course of this podcast.
Speaker: Good idea.
Speaker: The first one that struck me is you mentioned that Shenzhen is the most liquid stock market in the world.
Speaker: I always think of the New York Stock Exchange being potentially the most liquid.
Speaker: But you're saying, no, no, it's actually a Chinese stock market that's more liquid.
Speaker: Yeah, that's right.
Speaker: So there's an enormous amount of trading going on in the Chinese stock markets.
Speaker: Remember, you've got different Chinese stock markets.
Speaker: Onshore, you have Shanghai and Shenzhen.
Speaker: The way we look at liquidity is not just the amount of money that's being traded.
Speaker: The U.S. is really big in that as well.
Speaker: But it's also relative to the size of these markets.
Speaker: Now, you have, of course, some really small markets in the world that if you trade a little bit, then suddenly it looks like it's a lot of trading going on relative to the size of these markets.
Speaker: We ignore these, right?
Speaker: But if you look at Shenzhen, the whole market is being bought and sold four times a year.
Speaker: That is just incredible, right?
Speaker: All companies, all of these companies are being bought and sold four times a year.
Speaker: Every quarter, the whole market turns over.
Speaker: Why is that the case in China?
Speaker: Because Shanghai, to be honest, is also extremely liquid.
Speaker: This is a large retail market.
Speaker: Around the world, most markets, we have a lot of institutional investors in the US as well.
Speaker: Pension funds who buy and just sit on it and clip the dividends and that's how they invest.
Speaker: In China, that is much less so the case.
Speaker: The vast majority are retail investors and literally people who sit in brokerage houses and buy and sell during the day.
Speaker: Now, another statistic you mentioned, however, is that actually the U.S. market is still, in terms of company size, quite a bit larger.
Speaker: So we have higher liquidity in space like Shenzhen, but we have also still very large companies trading in the U.S. That is, the market cap is actually much larger.
Speaker: Yeah, so if you look at it, just to give you an interesting stat here, Apple, the Apple stock, the market capitalization of that company, the market value of that company is bigger than ASEAN or Taiwan or Korea.
Speaker: That is just amazing, right?
Speaker: So some of our countries.
Speaker: So one, you're saying one company is larger than the stock markets?
Speaker: One company in the US than the whole of these markets.
Speaker: So the U.S. market is still extremely big.
Speaker: And that is not just the stock markets, the bond market as well.
Speaker: And that's why you and I, we always talk about U.S. bond yields and the dollar, because small movements in that, the amount of dollars that that implies is just massive for our markets.
Speaker: And therefore, what happens in the U.S. still dominates financial markets in Asia to a large extent as well.
Speaker: Now, Apple might be an extreme example, right?
Speaker: It's a very iconic big company.
Speaker: But there are other big companies in the U.S. as well, right?
Speaker: It's not just about Apple.
Speaker: Presumably some of the other companies also exceed then the size of the stock markets.
Speaker: Absolutely.
Speaker: Apple is one of the biggest ones, but there's a few other ones as well, right?
Speaker: Very often people talk about the Magnificent Sevens or these sort of things.
Speaker: But that would be the same for those stocks.
Speaker: Absolutely.
Speaker: They dominate size globally.
Speaker: Now, the third fact that caught my eye here that you mentioned is really looking at relative market caps within Asia.
Speaker: And you mentioned that some of the Indonesian companies actually come close to some of the Chinese companies, which we tend to think of as being very, very large.
Speaker: So what's the fact that stuck out for you here?
Speaker: Yeah, so the top five Chinese property companies, the size of these companies together,
Speaker: is now smaller than the largest Indonesian bank.
Speaker: This tells me two things.
Speaker: First of all, they were probably four or five times as big only two years ago.
Speaker: So we've seen a massive collapse in the size of these property companies.
Speaker: These share prices have really come down a lot.
Speaker: That has caused one reason.
Speaker: But it also shows that the largest Indonesian bank, I used to be a banking analyst in Indonesia in the late 90s,
Speaker: Nobody wanted to invest in it.
Speaker: They were small.
Speaker: People ignored that market at that time.
Speaker: But now one of these stocks is bigger than the whole property market.
Speaker: But if you look at the news flow around the world, you get a lot of news flow on Chinese property and very little on Indonesian banks.
Speaker: But market-wise, that should change.
Speaker: Indonesia, therefore, has emerged as well as a really serious contender with big companies.
Speaker: So that's...
Speaker: That's an important fact in that sense.
Speaker: Well, that certainly highlights the rise of Indonesia and the big market that's developing there.
Speaker: But it also, of course, reflects some of the structural shifts within the Chinese economy.
Speaker: You said, you know, property developers declining.
Speaker: But there's another sector that's doing extremely well in China, and that's the auto sector.
Speaker: And that's actually your fourth statistic here.
Speaker: And that is that some of the Chinese automakers now starting to clip on the heels of some of the big U.S. guys.
Speaker: That is correct.
Speaker: So the sales numbers of the leading Chinese EV maker, BYD, is now exceeding that sales volume.
Speaker: So not the amount of money they make, but the number of cars that they sell.
Speaker: And I'm talking specifically about EVs here, not about hybrids and stuff.
Speaker: exceeds that of Tesla.
Speaker: Now, that might have happened just in one month, but if you look at it on a quarterly basis, it will probably continue to exceed that as we go deeper into 2024.
Speaker: What does that tell us is that you and I have spoken about this in the past.
Speaker: The Chinese EV market is under pressure.
Speaker: There's a lot of companies that moved in there.
Speaker: The Chinese are now exporting this to the rest of the world as well.
Speaker: They do discover new markets there.
Speaker: And here you go.
Speaker: They grow in size.
Speaker: And that's partially because of the development of that whole EV market.
Speaker: And you rightly say so.
Speaker: This actually illustrates quite nicely that you see one sector property struggling.
Speaker: And that is the old Chinese growth model.
Speaker: And you see, to a certain extent, a new growth China model emerging out of these debts.
Speaker: It's, of course, also something that we follow on the macro side, and that is that China has now become the top global export of cars from virtually nowhere, exceeding Japan, exceeding Germany.
Speaker: In terms of volumes, we have to say, not in terms of value.
Speaker: But it used to be in the last two years or so that the primary exporters were actually farmed.
Speaker: foreign companies from China exporting vehicles, Tesla being one of them, BMW, for example.
Speaker: But it's now Chinese companies that become major exporters in their own right.
Speaker: So that's still, you see that shift as well.
Speaker: So the whole global auto industry is really shifting.
Speaker: China is becoming really dominant in that.
Speaker: a prominent player into that.
Speaker: And well, let's see how that goes.
Speaker: And they've really been able to do that, not so much with the internal combustion cars, but really with the EVs, right?
Speaker: That's been the growth area.
Speaker: Well, these are all very fascinating stats.
Speaker: And I think it's a great time to take a quick break.
Speaker: And when we come back, we'll look at some of the other stats you put out there related to Korea, for example, and related to India, of course, as well.
Speaker: Good.
Speaker: So, coming back to these fascinating stats you unearthed, Harold, one of them actually relates to Korea, and that is that the Korean equity market is actually dominated by one company.
Speaker: Yeah, so quite a few of Asian stock markets, Korea, Taiwan, actually, Asian markets, I would say, as well, they're dominated by a few companies, but that dominance is really visible in Korea.
Speaker: Now, Samsung is the largest market cap company in Korea.
Speaker: And most people say, oh, Samsung is so dominant in the market.
Speaker: And I forgot exactly what the Samsung electronics company is.
Speaker: I think it's about maybe 25% or maybe close to 30% of the market.
Speaker: But it's part of a larger group.
Speaker: So if you take the other Samsung companies in there, they do shipping and they have all kinds of other businesses, insurances.
Speaker: If you add that to that, it's about 40% of the Korean market, of which a large part of that is, of course, Samsung Electronics.
Speaker: And this is why we often talk about DRAM and semiconductors, because that is one of the key products, of course, they make.
Speaker: Not only do they sell that, but they put it into their smartphones and into their TVs as well.
Speaker: Therefore, the DRAM cycle is of such importance in Korea.
Speaker: But it's amazing that one company can dominate a stock market as much.
Speaker: And the other interesting thing, and it's not a fact that I have here, but if you look at the top 10 players in Korea 20 years ago, they're almost about the same.
Speaker: So these companies are super entrenched.
Speaker: That's not the case in China, where all kinds of new companies are.
Speaker: Entrenched, but very dynamic as well.
Speaker: So they do evolve quite a bit.
Speaker: But I think that stat also reminds me, just looking at it from a macro perspective, that actually the Korean economy, even though it's very large and quite diversified, is still very exposed to the tech cycle.
Speaker: It's semis on the export side.
Speaker: It's consumer electronics, for example, that really affect the volatility of economic activity in Korea.
Speaker: Yeah.
Speaker: With implications for exchange rates.
Speaker: Exchange rates and how the central bank thinks about the cycle and so forth.
Speaker: Taiwan has that to a certain extent as well.
Speaker: There you have Taiwan TSMC, the foundry maker, is also very dominant in that particular market.
Speaker: But the funny thing is to a certain extent, as you just highlight,
Speaker: That is also a dynamic company.
Speaker: It's not a large behemoth that just sits there and does nothing.
Speaker: They continue to be at the cutting edge of chip making in the world.
Speaker: And that's of course always a big debate among economists is how you have such large companies that are so dominant.
Speaker: still being dynamic.
Speaker: Why are they not kind of becoming lazy and entrenched?
Speaker: And one of the reasons is that really these companies compete on a global level, that they may not have significant local competitors, but they still need to kind of keep on top of their game to compete against some of the big global players.
Speaker: And that keeps them on their toes.
Speaker: Yeah, and if I therefore look at the Taiwanese stock market, I don't really care what happens with the PMI numbers that come out of Taiwan or what you guys say about the exchange.
Speaker: That's a lot of disrespect to economists.
Speaker: Or interest rates in Taiwan, because that doesn't matter for those particular companies.
Speaker: It matters, of course, for other companies, but...
Speaker: So what matters is what happens in mainland China, Europe and the US because these are global markets.
Speaker: So that's where they sell their products.
Speaker: And that's so for Korea, that's the case for Taiwan, and actually to a large extent for Japan as well.
Speaker: Global cyclical markets.
Speaker: That actually brings us to the next interesting statistic that you unearthed, and that is India.
Speaker: It relates to India.
Speaker: And actually, you say India's stock market is now larger than Korea and Taiwan combined.
Speaker: That is quite a big, big stock market then in India.
Speaker: India is quite an equity story.
Speaker: Over the last 20 years, India has performed very well.
Speaker: In the last eight years, it has gone up in each of these last eight years.
Speaker: That in itself is already quite remarkable as well.
Speaker: So it's eight years of straight gains.
Speaker: It has therefore become bigger.
Speaker: A lot of people complain about valuations.
Speaker: It is a very expensive market.
Speaker: And maybe also rightly so.
Speaker: It's very profitable for the companies.
Speaker: But putting that aside, yes, that means that it has really emerged as a major stock market in Asia.
Speaker: Of course, in India, that gets a lot of attraction.
Speaker: But within Asia, a lot of the news flow very often is Korea, Taiwan.
Speaker: These markets are big, but we shouldn't ignore that those markets are actually quite sizable as well.
Speaker: And it's not just the size of the existing companies.
Speaker: It's also the new money being raised, if I get your statistics right.
Speaker: Yeah, there have been more IPOs in India over the last two years than in the US.
Speaker: A lot of these IPOs are smaller, but it just shows that the stock market's got a lot of feed in.
Speaker: There's a lot of new supply, if you want to put it like that, new companies coming to the market.
Speaker: On the other hand, there's also a lot of people that want to invest in it.
Speaker: Retail participation is really rising.
Speaker: In India, you've got these kind of systematic investment plans, so people put money every month at the end of the month into the stock market through some savings plans.
Speaker: And that means you've got locals buying these companies and companies offering their shares in the market there.
Speaker: So that's a very healthy sort of development.
Speaker: And, of course, the stock market has performed very, very good, has outperformed the S&P 500 over the last two decades.
Speaker: Now, we just discussed Korea and Taiwan, and we mentioned that there are some large companies that really dominate the exchange.
Speaker: Is that the same in India, or do you have a more diversified universe of course?
Speaker: No, it's very different in India.
Speaker: You're right, so Korea, Taiwan, very concentrated, but the two most diversified markets in Asia, Japan, and India, India has got a lot of companies that are fairly sizable, not as big as some of the biggest Chinese companies, let alone the US,
Speaker: But there's quite a few of them.
Speaker: So it's diversified and you get big sectors such as pharma, IT, domestic consumer, the banks, actually construction companies.
Speaker: Therefore, the dynamic of that market is very different as well.
Speaker: It's not just one story that drives it, but maybe 10 different stories.
Speaker: While in Korea, to a certain extent, as I mentioned, you really got to focus on DRAM.
Speaker: Now, the last fact I wanted to pick up here, and you have about 13.
Speaker: We only covered really about half of those.
Speaker: There's more.
Speaker: So anybody who wants more, obviously, you know, get hold of this report here.
Speaker: But the last fact you mentioned is that Vietnam is coming up as a very liquid market.
Speaker: That's right.
Speaker: So Vietnam is still classified as a frontier market.
Speaker: So it's not really part of the global universe of stocks.
Speaker: Frontier is really for niche investors to a large extent.
Speaker: But it has performed well.
Speaker: It has grown well.
Speaker: It's had its own kind of problems as well.
Speaker: I think we spoke about this in this podcast.
Speaker: What happens maybe in property and these sort of things over time.
Speaker: But there's a lot of trading in that market.
Speaker: So Vietnam now trades as much as Indonesia or Singapore.
Speaker: That is quite remarkable for a frontier market.
Speaker: Maybe at some point in time it will be upgraded to an emerging market status.
Speaker: That's the next level before you then go to a developed market status.
Speaker: But irrespective of that, it's a large and liquid market.
Speaker: So what we just mentioned on India, that you've got new companies coming in and that's healthy.
Speaker: We actually see this in the region as well.
Speaker: We've got new countries, new markets coming in.
Speaker: Vietnam has really emerged as an investment destination the last decade.
Speaker: Maybe Bangladesh will be one that emerges over the next decade.
Speaker: We'll see how that works out.
Speaker: But yeah, it means we get more and more companies listed and markets to look at in Asia.
Speaker: So I think what your stats here really bring out is how dynamic Asian markets still are, right?
Speaker: Despite all these headlines we have of economic challenges, there's so much...
Speaker: beneath the surface in terms of shifting investor attention, companies rising and falling.
Speaker: There's still a lot of excitement about the markets.
Speaker: And that has a key implication.
Speaker: Sometimes people say Asian markets haven't performed very well for the last 20 years or 10 years.
Speaker: And you're right.
Speaker: They are right if you put them all together.
Speaker: But there is so much diversity, much more so than actually in the US and Europe.
Speaker: that it's almost difficult to say that because India has done very well and Japan has dragged things down.
Speaker: More recently, of course, China.
Speaker: But in China, EVs have done very well, but not the property.
Speaker: So you really, Asia is really a stock market universe, I would say, where you can't just look at the surface, but you really need to dig deeper into these stories.
Speaker: And what way of better making sense of it all or better tracking this than reading on a regular basis The Flying Dutchman?
Speaker: Or listen to this podcast, right?
Speaker: So Harold, in 2023, you climbed a lot of temples across Asia, in Java, South India.
Speaker: What is 2024?
Speaker: More temples in store for you?
Speaker: Funnily enough, yes, Fred.
Speaker: So my Chinese New Year holiday is going to be in Mexico.
Speaker: where I'm going to see Mayan temples, Palenque, Yat-Chilan, Bonampak, all Mayan cities.
Speaker: Kalakmul is one.
Speaker: Some of them are really deep into the jungle.
Speaker: So you have to drive for a day and then have a dirt road and walk for an hour and something like that to really get there.
Speaker: But knowing you, just looking at the temples is not enough.
Speaker: I'm sure there's more preparation that goes into your trip.
Speaker: Yeah, actually.
Speaker: It's something that I wanted to do a couple of years ago, but then COVID delayed that whole process.
Speaker: I was actually going to go with a group of archaeologists who had worked there.
Speaker: You could actually subscribe to that, to the University of Texas in Austin.
Speaker: Now, their time skills doesn't work out now.
Speaker: But I read a book about the mines, but I also thought if you dare, they actually told me, it would be nice if you can read Mayan glyphs.
Speaker: And you've probably seen them at some point in time, maybe in a museum somewhere.
Speaker: They're kind of funky looking sort of glyphs.
Speaker: So I've decided to learn that as well.
Speaker: That sounds more difficult than you think it is.
Speaker: You can't learn in my English, what is your name, Fred, and what are you doing this afternoon?
Speaker: We have no idea how they said that.
Speaker: It's more about, in this and this year, this king was decapitated, or in this and this year, this king invaded this city.
Speaker: So the words of conquering, decapitation, succession, prince, king, and these, if you got that sorted out in dates, you can actually read some of what they call the stila, the kind of
Speaker: stone inscriptions that stand in front of these large Mayan temples.
Speaker: But that's going to be my Chinese New Year holidays in Mexico sweating in the jungle.
Speaker: What are you going to do, Fred, over Chinese New Year?
Speaker: Well, not quite anything as exciting as speaking glyphs, Mayan glyphs, or being on temples in Mexico.
Speaker: But I'll be celebrating a very, very traditional Chinese New Year.
Speaker: Very traditional indeed.
Speaker: In fact, more traditional than most people celebrated in Asia.
Speaker: And that's because I'm heading to Queens, New York to celebrate with my in-laws.
Speaker: And as it often is in expat communities, some of these traditions are preserved much more.
Speaker: So it'll be a very traditional Chinese New Year dinner in Queens, New York for me.
Speaker: So that's a lot of Chinese food and a lot of tea for you then.
Speaker: Yes, and I will be ordering those not in Mayan but in English.
Speaker: So there you have it, folks.
Speaker: Everything you didn't think you needed to know from offbeat stats on Asian markets to Mayan hieroglyphs.
Speaker: It's a never-done moment here on the Banyan Tree.
Speaker: Thanks everybody for joining us.
Speaker: And if you haven't subscribed already, please do so wherever you get your podcast.
Speaker: Our sister podcast, The Macro Brief, is out every Friday as well.
Speaker: So do give a listen to that one too.
Speaker: Take care and all the best till next time.
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