“Taiwan will eventually go back to China.”
Those were Chen’s (not his real name) words – a retired Taiwanese intelligence officer I had the privilege of speaking to last Thursday. Big words.
However, I’m not talking about politics today. I don’t want to be put in a political quagmire. It’s not for me. It’s not for you.
Over the past 2 weeks, I was in Taiwan for my year-end family trip. I love my year-end trips. It’s an excellent time to recharge and expand my lens to the outside world. Only this time it wasn’t just a holiday.
Why I pay attention to Taiwan
5 years ago, Taiwan’s old streets were bustling with crowds. Today I walked along those same streets, the crowd shrunk – even on weekends.
You see, China claims sovereignty over Taiwan. Chinese tourists drive Taiwan’s economy. Yet Chinese tourists were restricted from visiting Taiwan for years.
In 2019, China blocked individual travelers from visiting Taiwan.
In 2020, COVID-19 pandemic shut off Chinese tour groups to Taiwan.
For the past 2 weeks, many tourists I bumped into come from Singapore, Malaysia, Thailand, and Korea.
Even when China opened its economy last year, Taiwan struggled on. Restaurant owners are still seeing the impact of a lack of Chinese customers. Retail shops too.
In fact, it’s much quieter this year as I climbed up the steep stairs in Jiufen, one of the popular old streets nested on the seaside mountain area in Taipei on a cool afternoon.
(Jiufen “Old Street” view at the top with my chilled, Taiwanese beer)
Put it this way, I snacked on my favourite scallion pancakes. I drank my bubble tea.
But here’s the thing: I also spent time talking to restaurant owners, ex-military officers, landlords and yes, Uber drivers to put my ears on the ground. No one is saying this. Yet the message is clear. Taiwan cannot ignore the world’s second largest economy. We cannot ignore the world’s second largest economy.
More than that, with over $2 trillion in household savings, China is the driving force behind many economies.
You don’t mess with that.
According to JP Morgan Asset Management Research, China’s share of global luxury goods spending will account for over 40% by 2026. That’s a massive jump from just 12% in 2012.
Couple of weeks back, I shared this with Diligence members: the US spends as much as it saves. China? The country saves 3x more than it spends.
(China savings/retail sales ratio is 2.9x)
Sure, Chen told me China now has internal social problems.
But you can’t deny that when China sneezes, the world catches a cold.
One of the biggest bargain opportunities (and I’m not gonna miss this)
In 2011, US consumers didn’t want to spend.
The US just survived one of the worst financial crises. Its property market was dead. Inflation was weak and economists were predicting double-dip recessions. Years later, the US economy was greased with ultra low interest rates, capital flushed in – new technology popped up, new businesses grew and minted new millionaires.
Today, the same forces are at work.
China is recovering from its worst property debt crisis. Its property market is dead. Inflation is weak. And its people just aren’t willing to spend. What’s interesting is, China’s CSI 300 is up 17% and the Hang Seng Index is up 18% year to date. And China is still trading at less than 10x PE ratio.
I admit, sometimes when I invest in stocks, I can be too early in the game. And I would rather be early than too late.
Super-investors know this. Hedge fund managers like David Tepper, Michael Burry, Howard Marks have all recently reported investing in China.
Why this is the most important thing to know
But of all these, I believe the most important is this: Today, China has 1.4 billion people. That’s 4x more than the US. Today, China accounts for 17% of the world population. Many Chinese are still living like US economic development during the 1950s.
And many of the Chinese middle-class are getting richer each year.
I believe, at some point, many of these people in China want to enjoy the same kind of products and services that developed countries like the US enjoy each year. They want higher quality products. They demand better services. They are willing to pay more.
That’s why, as a dividend investor, I want to look at great businesses selling habit-forming products and services.
On a personal note, being present with my kids, my family in Taiwan was a blast. Food was great. And it really brought back memories knowing how time flies. The last time I went to Jiufen was when my wife was pregnant with our first born. Today, we went back with 2 kids!
(Watching the stunning sunset with my elder son, at Gaomei wetlands, Taiwan)
It’s also moments when I travel and I get to put my ears on the ground, listen and open up my lens I know opportunities are abundant.
Btw, you might want to check out my previous travel lessons at Berkshire Hathaway’s AGM 2024 here too.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
Thanks for sharing. Yes, I believe the China stocks will make a come back too.