You're correct, Mayo1975. It's like Kyle Bass says (US hedge fund manager with interesting geopolitical views about China), the CCP controls the police, the media, the central bank and printing presses. Within mainland China at least, they control the narrative, and can manipulate any levers they like.
I lived in Shanghai and Beijing for 12 years until recently, and paid for goods/services almost exclusively with paper currency from ATMs. I rarely used electronic payments or electronic banking. Unlike here in Australia, I noticed that most of those red ¥100 notes from those cash machines were brand new. They had never been folded and you could still smell the ink on them. The amount of new money being printed (my experience is pre-2020) must be colossal. Of course there's no inflation . Who knows the real situation!
The part you write about 'face' is spot-on. Everything is a group activity in China, led by whoever is in charge. If you've ever seen a photo with everyone in the group making the same gesture to the camera with their fingers, you start to understand the collectivist nature of the society. Once the central government makes a decision to embark on a course of action, that's what's happening. Also, there is the need for social harmony to avoid unrest or threats to CCP control. Part of that unwritten social contract is economic growth and prosperity.
China doesn't have an (official) inflation problem and there's capacity to reduce interest rates a lot further. I've seen infrastructure projects in China on a scale that is hard to believe. Whole cities being built (in a very short space of time) from nothing, for example. And over the past few years, massive spending on infrastructure and real estate has pretty much been the only string to the CCP's bow in the face of downturns. A lot of China's wealth is in real estate and it's the only real investment option for most Chinese people. Bitcoin is unavailable. Stocks appear risky. When growth is required, massive government infrastructure projects are announced.
I'm a bag holder of the ASIA tech ETF. My thinking is the CCP will (have to) relax its war on China's large tech companies and show public support for them to encourage growth. It has little choice given the terrible growth figures and the need to hit that 12 month target. And at the same time, I suspect it will announce rate cuts and infrastructure projects to create jobs and get money flowing through their economy again. The alternative is unemployment, discontent and risk of social unrest. I have hope that the tech ETF and S32 will do well in this situation with full government support for stimulating their economy.
I've never owned a materials sector stock before. I bought S32 last year at around $3.80 (only a very small parcel; and as a short term trade, I suppose) and seriously thought about selling at $5.00 in March, April and June. Of course, all the broker forecasts were recommending *buy* with six dollar targets. And It's difficult to sell when the stock is up most days! Then, in the space of about two weeks we dropped 20-odd percent and suddenly instead of being 30+ percent up, I'm underwater! What the heck?!
I think more than just the money though, I'd invested so much time reading about the company (including on HC), and liked what I saw, that I wasn't ready to part with it. The contributors here are fantastic by the way. So knowledgeable; in particular Ashentegra's excellent posts here and on the OZL board. And the analysis on coal here is outstanding, and wouldn't be out of place in an analyst's report. I like how there's no unreasonable negativity and blame here, unlike some of the other HC boards. Very constructive.
There are a couple of things I can't seem to get my head around (I'm not super good with numbers). I've looked at a pie graph showing the breakdown of our revenue by commodity. I see aluminium and copper are the two biggest contributors to revenue. Do we produce the other base metals in enough quantity that, if say nickel, magnesium or zinc had a good quarter, we could materially benefit from that uptick in commodity price? Are we likely to see a quarter where copper and aluminium are weak but other base metals are strong and the currently smaller contributors become big contributors? Or will the various commodities always move up/down in unison?
Also, given S32 seems to be a very well run company with great assets and management, are we completely beholden to the commodity prices? I imagine, yes we are. The buybacks are great. Dividends will be welcome. But it's just a matter of waiting for the metals' prices to (bottom out and) recover (perhaps buy more shares if the price gets ridiculously low -- at $3.00 I'd be doubling down), and then S32 shares follow suit, right? Looking at our share price chart from 2015, I can see a 50% fall isn't unusual. It's simply a waiting game from here, right? I guess I'm wondering how inevitable a 50% share price fall is from here? The market seems to fluctuate wildly between the "inflation and lack of supply is pushing up commodity prices" to "China, and risk of recession is pushing down prices" narratives. I'm wondering how inevitable a fall below $3.00 is. I suppose it all depends on China and the underlying commodity prices.
Glencore was up 2% overnight, markets were up, and commodity prices look a little stronger. It's always a better weekend when SPI futures is up strongly Saturday morning! Monday should be a better day for S32. Now we just need to string a few good days together...
Thanks to everyone here for the information and knowledge shared.
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