Sat. Oct 16th, 2021


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Dear readers,

Fears over the outbreak of Evergrande still dominate the news cycle. Institutional investors rushed to give up exposure to the Chinese real estate developer after missing out on another dollar interest payout this week.

The local banks in China can only look at the investors with envy. It’s bad enough to have exposure to the country’s most guilty enterprise. But Beijing has only made matters worse by effectively asking banks to support the housing market.

The People’s Bank of China, the central bank, this week called on the country’s financial institutions to protect the ‘stable and healthy development’ of the real estate market and to protect ‘the legal rights and interests’ of homebuyers.

Translation: borrow more aggressively and let more bad loans slip. Lex expects domestic bank returns and dividends to be further developed gets in trouble. This may include Sunac. Even though China’s fourth-largest developer appears to be in a better position than Evergrande, Lex thinks it’s still too early to jump into this accumulated stock.

In the US, the real estate market is showing little signs of cooling off. Strict supply and strong demand mean that bidding wars have always been so common. Buyers who are looking for an advantage are turning to new businesses that can help them set up cash messages. Businesses such as Ribbon Homes, HomeLight, Orchard and Flyhomes, whether front customers cash or buy a home directly on their behalf. They make money by taking a commission, usually 1 to 3 percent of the purchase price. But, as Lex noted, the business model can quickly unravel as financing costs rise.

First-time buyers in the UK can expect to continue to struggle to save on deposits as the UK government rejects student loan repayments. Junior accountants is one of those likely to be hit. Initial salaries at the largest enterprises fell in real terms. Once they have done the calculations, a career in consulting on capital projects can wait, Lex says.

At the moment, disruption of the supply chain has replaced the property as the favorite talking point in the UK. The fragility of these chains and their reliance on human workers drives investors’ interest in automation. The logistics automation company AutoStore benefits from this. The Norwegian group weighs an initial public offering that could be valued at up to $ 12 billion.

Lex distribution ground shows revenue growth versus automation stock valuation

AutoStore operates in the so-called cubic storage micro-fulfillment, in which robots retrieve orders from vertical stacks. The top end of its valuation will work out to 24 times next year’s sales. It’s not cheap. But Lex believes AutoStore’s better margins and the limited options in the sector make it a good bet.

The same cannot be said for Amazon’s new home robot, Astro. Astro, called “Alexa on wheels”, is about the size of a puppy and runs on three wheels through your home. But at $ 999 per doll, do not expect Astro to launch a massive fad for home robots. Not that it matters, says Lex. Amazon’s core business is e-commerce and cloud computing. Whether Astro is finally a hit or a flop make zero difference to Amazon’s end.

In the space for electric vehicles there is a more tense grassland war. Sweden’s Polestar is a small step closer to its goal of tackling Tesla. It raised more than $ 1 billion from US investors this week. Although many EV companies have raised serious cash, Polestar has the advantage of being supported by the design and manufacturing capabilities of parents Volvo Cars and Geely. Polestar has already shown the ability to increase production quickly. That adds sparkle to its investor field, says Lex.

In the US, established car manufacturers such as Ford and General Motors also rushed to overtake Tesla. The electric dream is difficult to realize. Petrol cars remain the core business of the two companies for the time being. A big test for Ford comes next spring when it launches the F-150 Lightning — the electrified version of its popular pickup. Lex believes that no EV future can be secured without making electric pickups that Americans will want to buy.

Finally, for those who have not yet done so, see Inquisition game on Netflix. The South Korean dystopian drama has peaked in more than 76 countries since its release and could eventually become the largest program of the American streaming service. Just do not base your equity investments on its own weak connections to local South Korean entertainment companies.

Enjoy the weekend,

Pan Kwan Yuk
Lex author

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