May 22, 2024 • 39 mins
Embark with us on a financial expedition through Asian markets. We are joined by Dr. James Thorne of Wellington-Altus Private Wealth, who guides us through a landscape rich with both promise and peril.
We evaluate how Japan's strategic regional alliance with the U.S. and Australia, plus the sustained market reform tailwind from the Three Arrows of Abenomics, opens up new investment opportunities with Japanese firms. We also briefly consider India’s opportunities.
We consider, by contrast, how China’s Communist Party ideology, plus China-U.S. trade and technology tensions, has limited the returns investors can reap from investing in Chinese stocks.
We then turn to Taiwan, whose Taiwan Semiconductor fabricates many of the world’s most advanced chips, including those supporting the new world of AI.
As tensions simmer across the Taiwan Strait, we align with the view that outright warfare is an unlikely prospect—yet the specter of conflict looms, with potential to unsettle markets worldwide.
We scrutinize Taiwan’s informal
regional security alliances and the strategic prowess of Taiwan's defenses, which stand as a bulwark against aggression.
Beyond the immediate horizon, we ponder Asia's broader geopolitical and economic risks, the potential for internal upheaval within China, and the ramifications of debt entanglement among global superpowers.
Join Clem Miller and Steve Davenport, alongside Dr. Thorne, as we navigate the intricate interplay of military might, economic interconnectedness, and the catalysts that could ignite a shift in the Asia-Pacific region.
Straight Talk for All - Nonsense for None
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Steve Davenport (00:02):
Hello again.
This is Steve Davenport, comingto you from Skeptic's Guide to
Investing.
I'm here with my co-host, ClemMiller, and also a guest today,
Dr James Thorne.
James is a chief strategist atWellington-Altus Private Wealth
in Canada.
He offers us a perspective oneconomics that we are surely
(00:26):
lacking on the science or thesorcery of predicting the future
.
So I want to start.
Today's podcast is about Asiainvesting in Asia.
What are the risks, what arethe opportunities and how do we
take advantage of them?
So, James, when I think aboutyour portfolio, or portfolios
(00:48):
you recommend for clients, howbig a part does Asia play?
Why and where do you see thepitfalls in terms of
opportunities over the next twoor three years in the Asia
markets?
Dr James Thorne (01:03):
in the Asia markets.
So, on a secular, structuralbasis, I think Japan is very
interesting because I honestlythink that, in a world of proxy
wars, I think that theagreements that President Biden
has made with Japan in terms ofthe transference of knowledge
(01:45):
and the flow of capital goinginto Japan is really going to
set Japan into a lost decadebecause of the extreme levels of
debt and the heavily relianceon real estate.
But then again, and going backto Clem's theme, clem's theme on
on stock selection, you know wehave to be honest with
(02:08):
ourselves and suggest that the,the skilled labor force in Asia,
specifically in Taiwan andSouth Korea, cannot get
replicated in the United Statesor North America.
I'll put it that way in theUnited States or North America,
I'll put it that way, and so youknow, and until proven
otherwise, I think you know,Taiwan is going to be the center
(02:31):
of this innovative push into AIand crypto and all of that.
So I think, on a selective basis, I think there are great
companies in Taiwan that youwould want to.
You want to consider at TSMC,if you want to, in South Korea.
You want to go in there andlook at Samsung instead of
(02:52):
Micron in the United States.
Ok, but I do really think thatthe narrative that people are
missing is the fact that in aworld of proxy wars, where
you've got China saddling upbeside Russia, I think it's very
interesting that you know therelationship between the United
(03:13):
States and Japan are gettingtighter, so I'll push it back to
you on that, steve.
Steve Davenport (03:18):
Oh, I like that .
We were talking, Clement and I,the other day, about how this
agreement seems to have goneunder the radar with the US,
Japan and Australia of a newmilitary alliance, and I think
that it's like everything in themedia, some things are
significant and others are not,and I look at that and say
that's a pretty big statementwhen you try to look at all the
(03:41):
things that are going on in theworld, and our focus on Asia is
in working with our allies andstrengthening that military
aspect.
I still believe, as you said,as we talked about with Germany
in our other podcast, japan hasbeen pacifist somewhat
culturally, but also becauseit's pretty good financially for
(04:02):
them as a country when theydon't spend as much on defense,
it allows for more spending inother parts of the economy.
So I guess the one issue that Ithink or idea that you brought
up, is this idea of immigrationand how do we transfer
capabilities from one country toanother.
I listened to a podcastyesterday where they talked
(04:24):
about the fact that, when youlook at what's happening, taiwan
, semi and others are figuringout how their machines could be
locked down if there were an actof aggression and not utilized
by a country who came in andtook over.
So I think that people aregetting ready for a Taiwan event
(04:45):
and I think the idea that ifChina took over those machinery
and couldn't utilize them, andthe company could lock down and
deny access is a veryinteresting.
You know, an asset can be in acountry, but if an asset can't
be utilized, is it really anasset?
So, clem, what do you think ishappening in Asia in terms of an
(05:08):
opportunity, or is it an avoidversus a hold or a buy?
Clem Miller (05:16):
So, Steve and Jim, I think it's a very nuanced
situation.
There is one stock inparticular that I hold, and that
again is Taiwan SemiconductorTSMC, and I hold that one
because it has a virtualmonopoly on the GPU type chips,
(05:39):
especially those that are moreadvanced, from NVIDIA.
Nvidia contracts all of itsproduction out to TSMC.
The risk, however, with TSMC isthat of a Chinese invasion One.
There's a theory that TSMCprovides sort of a silicon
(06:00):
shield and that China won'tinvade Taiwan because TSMC is
there.
I don't agree with that, but Ido think that China will
undertake efforts, if there issome military action, to try to
avoid destroying TSMC.
Also they might decide todeactivate itself per some of
(06:23):
the things that you said, but Ido invest in TSMC because of
this kind of monopoly positionthat it holds.
When you move beyond TSMC, I dolike Japan and I do like India.
With regard to Japan, I hold anETF which is in my personal
(06:45):
portfolio.
Again, we're not recommendingindividual stocks or ETFs on
this broadcast, but I'm justtelling you what I hold in my
own portfolio.
So I hold a currency hedgedJapan ETF, and the reason I hold
that rather than individualcompanies is because I think
(07:05):
that it's very difficult forsomebody not Japan and then
invested equal amounts in allfive Japanese major trading
companies.
So I'm sort of doing that in asimilar way by investing in this
(07:38):
Japan ETF.
I'll say two more things.
Steve Davenport (07:44):
How is ?
Clem Miller (07:46):
What Buffett, it was equal weight.
Oh, it's, the ETF is typicalETF market cap weight, so much
more heavily in, for example,toyota than in others.
But Japan is a fairlydiversified economy, so it's not
like there's one dominant, onedominant stock.
(08:11):
So just two things I'll noteabout Japan.
In terms of the demographicissue, while that's an issue for
Japan and Japanese production,Japanese companies have taken
major strides with respect torobotics, and also they have
done overseas production, so alot of these Japanese companies
(08:37):
produce overseas, and so thefact that Japan is having the
country itself is havingdemographic issues has less of
an effect on the company'sprofitability per se.
So then, the last thing I'd sayabout Japan is that Japan still
has a tailwind from the ShinzoAbe Abe-nomics reforms, and so
(08:57):
they're benefiting from that.
So I'm very optimistic aboutJapan.
I'm also optimistic about India.
I hold the MSCI India ETF andthere again, I hold this because
I don't feel like I candistinguish among individual
Indian stocks, but I'm veryoptimistic about India's
(09:20):
medium-term and long-termeconomic prospects.
Medium-term and long-termeconomic prospects there's a
deepening capital market inIndia, which should be good for
stocks in India, and I will saythat another reason to hold the
ETF is because it's awfullydifficult for investors, even
(09:40):
institutional investors, to beable to invest in individual
Indian stocks.
They have a series of legalrules there.
Finally, as many listeners ofthis podcast know, I have a
particular bugaboo about China.
I hold no China stocks.
I invest in stocks in Europeand the US which have sales in
(10:07):
China, but I do not invest inChina stocks per se.
I believe that there's too muchongoing government intervention
into the workings, especiallyof the Internet platform stocks
(10:28):
stocks Too much intervention.
It's affected theirprofitability and their ability
to generate share price movement, positive share price movement.
And also I find it challengingto be positive about Chinese
stocks in the presence of exportcontrols, us export controls
and trade barriers and generaltensions between the US and
China.
(10:48):
So those are my commentsregarding Asia.
Steve Davenport (10:54):
I'd like to try to get a little more tangible
in this space because I've beenlooking at and we've decided not
to own Taiwan Semi.
Because we think there is toomuch China risk In our
portfolios at Circa, we're notusing Taiwan Semi.
I have felt for a while thatthere's a lot of saber rattling
(11:19):
and there's a lot of indicationsfrom China about how they
control Taiwan, but in the endTaiwan keeps operating and the
world keeps turning and I guessI'd like to know from you two
what's the probability of therebeing some active aggression
from China towards Taiwan.
Is it 25%?
(11:40):
Is it 50%?
Let's say I gave you the nextfive years?
Will we have an event and if so,will it?
We know what Taiwan semi meansto the semiconductor market and
we know what the semiconductormarket means to the
semiconductor market and we knowwhat the semiconductor market
needs to technology.
To me, when that third railgets touched, there's going to
(12:03):
be quite a charge that goesthrough markets and I just can
you estimate or dimension whatyou think the downfall would be
from the markets in Canada andthe US for an invasion and
what's the probability of aninvasion of Taiwan or some type
of control of Taiwan from China?
Dr James Thorne (12:22):
James, Well, theoretically speaking, right,
we know that the Chinese feelthat it's part of their country,
right?
I think the other interestingthing is I'm old enough to have
met people who grew up in Taiwanthat were fluent in Japanese,
because it was occupied by theJapanese.
(12:43):
I, I I'm going to defer to agentleman named George Friedman
and and I'll anchor off of him,and he basically says that, you
know, there's, there's not goingto be a conflict over the in
the next five years, and I, Itend to agree with that.
The way I frame it in my mindis look, there's so much debt
and there's so much that needsto be done domestically within
(13:06):
the United States and China,canada and Europe to basically
deal with the excessive levelsof debt.
That, in my world I frame it isthat there's going to be
detente for at least five yearsuntil we get through all of
these issues.
And so will they use the sablerattling to, you know, to keep
(13:30):
the domestic folks integratedand involved?
Will politicians, you know like, think about it?
You know, nancy Pelosi flew toTaiwan, right?
I mean, will they use this forpolitical maneuvering?
Sure, but I just don't see it,over the next five years,
anything substantially happening.
(13:52):
And I think if China wouldattempt to invade Taiwan, I
think the Americans have themight to basically repel it, and
I just don't think China wantsto get into a war with the
United States right now.
But if it did happen, Steve,it's a major geopolitical event.
I mean, it's a major major.
You know, financial marketsaround the world would
(14:14):
reverberate from something likethat and it's a severe risk
which I just don't think peopleare willing to take right now.
Steve Davenport (14:21):
Yeah, I like to think of.
The people are practical andthey don't have the money for a
war.
They won't spend on a war.
But history has kind of shownsomething different when
countries become desperate, orwhen countries feel like they're
losing the messaging or losingthe, I think Xi would love to
end his career as president andsay I was the one who brought
(14:44):
back Hong Kong, I was the onewho brought back Taiwan into the
mother country, and I thinkit's as much about ego as it is
about finances.
Dr James Thorne (14:56):
Right and Steve .
What I would add with that isand I go back to Taiwan, semi
and the fact that can wereplicate over here in North
America what they have in Taiwan, and if we can replicate it,
then Taiwan does not ceases tobecome a strategic asset.
If we cannot replicate what'sin Taiwan, in the United States,
(15:22):
then I suggest that, givenwhere we're going in terms of
the digital economy and AI and Ithink Clem talked about how
TSMC is at the center, thefulcrum of AI and GPUs then I
just don't.
I think that you know therewill be significant Western
(15:44):
support for keeping Taiwanindependent.
Steve Davenport (15:50):
What do you think, Clem?
Clem Miller (15:53):
I agree with everything that Jim said.
I would just add a what I thinkis a very key point, which is
that in all of this discussionabout Russia and Ukraine being
sort of an analogy or aprecursor to what might happen
with China and Taiwan, there'sone point that's missing from
(16:14):
that equation, and that is thatChina and Ukraine have a land
border and China I mean Russiaand Ukraine have a land border.
China and Taiwan have a prettywide and very choppy, by the way
, straight in between them.
(16:34):
That's going to make it quitedifficult for Chinese forces to
attack Taiwan.
Also, the landing spots thatChinese forces have on Taiwan
are very limited.
I saw a map recently whichshowed that really there are
only a few spots, sort of chokepoints, along the Taiwanese
(16:58):
western coast where Chineseforces can land, and those are
easily defensible.
And then also the fact thatTaiwan is so mountainous that
Taiwanese troops, if necessary,could retreat to the hills and
fight what amounts to aguerrilla war, guerrilla warfare
against Chinese forces, shouldthey be able to establish a
(17:24):
toehold on the island.
So, honestly, I think fiveyears yeah, I don't think
anything's going to happen infive years.
Could it happen eventually?
Sure.
Could it happen eventually?
Sure, if China develops enoughforces.
But a lot of this also dependson what we were talking about
(17:48):
with regard to theJapan-Australia alliance, into
which you can throw in the UK,sometimes you can throw in
Canada, and sometimes you caneven throw in India, and,
believe me, there's got to besome kind of cooperation between
this group of countries andTaiwan.
Dr James Thorne (18:08):
Can I just add one thing, guys, and this goes
back to a book I read by agentleman named Chalmers Johnson
.
I got hooked on this.
You guys know I lived inAnnapolis or the DC area, which
is where the, the Naval Academyis, and you know.
The question is you know whydoes?
In downtown Annapolis we haveso many great sushi restaurants?
(18:29):
And it's because when youbecome a mid and you graduate,
you typically go to Okinawa,right and and and.
So what is Chalmers Johnsontalking about with regards to
the relationship between theUnited States and Japan is and
I'm going to put a number out,and it's wrong, but there's a
significant, double digit numberof military naval bases in
(18:51):
Okinawa, and I would suggest youlook at where that island is
relative to the South China Sea.
Look at where that island isrelative to the South China Sea.
And look, I've known you guyslong enough to know about when
they started building, whenChina started building the
islands right in the middle ofthe South China Sea, and we've
also had long discussions aboutKissinger's book, about how
(19:12):
China doesn't use chess as agame of strategy.
They go china doesn't want tobe surrounded, so do we do we
take?
Is china just emulating itstraditional defensive measure,
right, and doing what they'redoing, or are they?
Have they changed and are theybecoming an offensive military
(19:33):
power?
I that that that's what thequestion mark.
But what I think people need tounderstand, or at least where I
frame it, is there is asignificant presence in the US
military on Okinawa, which isjust, it's not that far away,
not that far away from Taiwan.
(19:54):
So I think, for now, I thinkeverything is okay.
But you know, steve, you ask isit 10, 15, 20 in my lifetime?
Anything's possible in alifetime and of course there are
possibilities of politicalmissteps, right, and to get into
the situation.
(20:15):
I just think right now it istoo important as a strategic
asset for the United States thatthe safety of Taiwan is ensured
for the time being.
That's my narrative.
I have nothing more than I haveno insight into this.
But it's just for me, readingbooks and doing what I do.
Clem Miller (20:38):
Yeah let's not so let's not forget, let's not
forget that China also benefitsa lot from Taiwan already,
because a lot of those TSMCchips are manufactured on behalf
of Chinese companies andthere's a lot of other trade
between China and Taiwan, like,for example, apple handsets and
(21:01):
other things, sets and otherthings.
So there would be a major Imean, apart from just, you know,
a depletion of militaryresources on China's part there
would be economic conflict thatmight affect the Chinese
mainland, the Chinese citizenry.
And you know the one thing, theone thing that you know China
(21:27):
is not a democracy, but it's not.
Even though China is not ademocracy, it's still responsive
to unrest at the popular levelin China.
And so if you have economicproblems, serious economic
problems, that result from aconflict with Taiwan, you know
that could impact the popularityof the regime, and so you know
(21:52):
Xi might know that andanticipate that and and, as a
result, perhaps not invadeTaiwan because of that fear.
Dr James Thorne (22:04):
Because of that fear.
Yeah, I would add, is to meit's also I think there's been
some great research coming outof the Council of Foreign
Relations on this in terms ofquestioning the term
globalization and actuallyidentifying.
Look, it's not globalization,it's called regionalization.
The only economy in the worldthat really globalization works
(22:25):
is the United States, becausethe United States has ceased to
basically fully integrate withMexico and Canada, but China is
integrative, fully into, if youlook at the trading block of
Asia as we speak.
So, you know, do they movethings around to get around you
know, tariffs and whatnot?
(22:46):
I don't know.
But I think the interestingthing for me is when you parse
it that way and you've got sucha respected institution as the
CFR coming out and providingclarity to the situation.
I think and this goes back toour comments on Japan I don't
know how much the Japan carrytrade has financed the real
(23:10):
estate market in China, like,what are the linkages between,
you know, the cheap money andthe zero interest rate regime of
the BOJ and then financing thereal estate market?
What are the intricacies, whatare the tests, the
interconnectedness between allof these Asian economies?
And suffice to say, I think,because of that level of debt
(23:35):
being so high, in the fact thatyou know Xi is now, in his
policies, timely to attack atleast you know the excessive
urbanization in China.
But I think we've got a periodof time of everybody's going to
calm down and we're going to tryto work our way and work our
(23:57):
way out of this debt mess, andthat's how I view it.
But I still I do not think thatChina is as isolated as some
politicians make us believe theyare.
Steve Davenport (24:11):
No, I believe that your points are wrong.
In terms of a positive scenario, I'm a little bit skeptical, so
I tend to go towards thepossibility for a mistake, the
possibility for a mistake.
And I saw the recent, theassassination in Japan, the
assassination recently in Europe.
I wonder sometimes whetherthere's a chance for some event
(24:36):
that we're not expecting, whichis that black swan type that
could cause us to suddenly see aflare up in Asia and China not
wanting to look weak and alsohaving unrest at home.
I'm not sure.
I agree with Clem that unrest athome means that they don't act
(24:56):
in Taiwan.
I think it's a gooddistractionary tactic to move
the people towards thisnationalistic ideal, move the
people towards thisnationalistic ideal, and I think
that we've still got this.
You know, leader in North Korea, that I don't think anybody has
a real eye towards what's goingto happen there.
(25:17):
I see something you knowunexpected.
You know North Korea tries tolaunch something against Japan
and you know everyone has toreact, everyone has to line up
behind their partners so yeah, I, I steve, I'm gonna, I'm gonna
invoke brzezinski, zygmuntbrzezinski, to show the table I
don't think.
Dr James Thorne (25:37):
I just don't think.
China, I mean, the thing I findinteresting about china is they
don't have free capital flowsand they they're not free
floating the renminbi or theyuan.
And so I suggest that I think Ihear you and I think you know,
(25:59):
as investors, and if we talkabout it, it's you know what is
the, what is your strategy, if,as and when you know a flare up,
if China does invade Taiwan, Ithink we all have to have
contingencies, and that's whatinvesting in portfolio
management is all about.
But I just don't think.
Look, I mean, let's be honesthere.
The United States needs tofinance its debt, and two of the
(26:20):
largest purchasers of its debtis Japan and China.
Let's just be honest about that.
We're in a period of fiscaldominance, just like we were in
post-World War II, and so Ithink, after the next four years
, when the United States has torefinance its debt and guys, I
will come down on I do notbelieve this hire for longer
(26:42):
facade that we get from centralbanks I think Waller is totally
misplaced.
Let's just look at Target'snumbers this morning.
Ok, the private sector isbuckling and we have excessive
amounts of debt.
And oh, by the way, eitherJapan, europe and China
purchases the US debt or we gointo debt monetization.
(27:05):
So this foray into modernmonetary theory by the
progressive left in Canada andthe United States and maybe and
let's throw Europe in there tome is over.
There is no free lunch.
So the way I frame that morespecifically is we get a detente
(27:26):
, is we got to refinance thisdebt.
And we can't refinance thisdebt when the Fed funds rates at
350.
We have a yield curve in theUnited States, the longest
inversion ever and the deepestinversion ever.
And, guys, 25 basis points isnot going to un-invert the yield
(27:48):
curve and so the oxygen to theprivate sector even if they cut
50, is not going to get it in.
Look, there's real estate.
I mean, talk to folks on theground.
I talked to somebody inPhiladelphia the other day.
Right, construction is gone,there's nothing there.
Or let's use it if we'll goback to our previous employee
(28:10):
when our band was back together.
Right, there's no files.
Getting through senior loan,like investing or banking, is a
volume business.
Right, you borrow short and youlend long, and it doesn't last
when you have an inverted yieldcurve.
So that's where I come down andsit there and go.
That's to me the gating factornow, steve and Clem.
(28:35):
But once we get through thisand we finance all this paper
and everybody's happy and theygot another five years, then all
hell could break loose right?
And that's kind of how I'mframing it, yeah.
Steve Davenport (28:48):
I mean, I love to think that we have our
finances and we are moreeconomic animals than we are
political animals, but I'm notsure that history is going to
tell us that.
I think that when we look atmessages and stories as you talk
about, I see the story beingthat China wants to be number
(29:10):
one in the world.
They want to be the number oneworld economy.
Their involvement with Iran,their involvement with Russia,
their involvement with anycountry who will help them build
the road, is not really goingto ultimately drive their
decision making.
I feel that the China nationwants to unify and wants to have
(29:36):
one ideal, and that is thatthey are the chosen ones.
It's amazing to me how similarthey are to Japan in this idea.
They don't allow immigration,they don't have a feeling that
they need other cultures to be astrong country, and I think
(29:56):
that's their biggest weakness,because they don't take the
inputs that could come fromother countries and people
coming to their and making theircountry stronger.
The United States does, and inall of its immigration mistakes
it's still more open than it'sstill been, a key part of why
we're so dynamic and why ourgrowth rate has continued to
(30:18):
maintain, while other countrieswith a more closed economy will
not.
I believe you're right, james,that we need to deal with the
debt.
I'm just a little bit um lesssure of our political will and
I'm a little less skeptical onthe uh ability of our leaders to
(30:38):
do that.
Dr James Thorne (30:39):
So in a, in a presidential, from a, from afar,
sitting here on lake ontariolooking into the states.
It's kind of it's.
I love it because it's like Iwould be.
I'm at a party back in college,sitting at the side watching it
all go down right, and what Iwould say to you that I find, in
a presidential election year,that I think the nuance that is
that is so impressive about,about what's going on in DC, I
(31:02):
mean there's a lot about,there's a lot of problems, but
irrespective of whether you likeMr Biden or Mr Trump and let's
leave them aside one of thethings that has happened is that
there isa unified industrialpolicy to focus on China and to
focus on making sure that theUnited States is unified,
(31:27):
irrespective of the politicalparty, towards China.
I think the Biden administrationengaging in Japan is just an
additional layer that reallystarted I can't remember if it
was you or Clem talked about,you know, the Abe and the Arabs,
right?
I mean, we worked together whenthat all came down.
(31:48):
Japan is still using aconstitution that was written by
MacArthur after World War II,right?
So hey, you know, let's make ifwe're going to play a world of
proxy wars, let's make Japan anoffensive military power and let
(32:09):
them basically patrol the SouthChina Sea.
China has a long memory aboutthe wars that it has fought with
Japan, right, and so I thinkit's going to be very so, guys.
I am very bullish on riskassets up until the end of this
decade, and you can see theunderlying is.
(32:34):
The gating factor is we allhave to refinance the debt at
lower rates.
We all have the same problem.
Once that happens, I think the2030s are going to be really,
really, really, reallyinteresting.
That's my two cents.
Mike GREEN, that's nice, I likeit Interesting, clem, do you
(32:56):
feel?
Steve Davenport (32:57):
Let's wrap it up here how do you feel about
Asia and what would have tochange to make it more
attractive to you in terms ofhaving more faith in the
company's ability to execute inan environment where China is
being?
You know, if we were to startto see a relaxation of some of
the tariffs, what is it going totake for you to become bullish
(33:21):
on China?
Clem Miller (33:25):
Hard to see at this point, but I would say that you
would need an ideological seachange in how the Chinese
government, and specifically theCCP Chinese Communist Party,
you know views its rolevis-a-vis companies in China.
(33:45):
There'd have to be a tremendoussea change in terms of how they
look at things like data, howthey look at things like, you
know, control over information,how they look at, you know what
companies can do in terms oftheir ability to work overseas,
(34:09):
the ability of foreign companiesto work unfettered in China, of
foreign companies to workunfettered in China.
We don't have any of that.
It's a very, very ideologicallyinfused system that impacts
investments and returns oninvestments and you've seen that
(34:30):
over the last 10 years,essentially, especially over the
(34:58):
last five years, over the last10 years, it's flat.
You wouldn't have made any moneyin China.
Over the last five years.
You would have lost money.
Compare that to the rest of theworld where you would have made
a lot of money, where you wouldhave made a lot of money.
I mean, there's just no,there's no.
I have no faith right now inthe ability to to make more
(35:18):
money in uh in China, or even tomake the same amount of money
in China, as you would in uh inother parts of the world,
including, by the way, europe.
I think, uh, I think Europeoffers better opportunities, uh
right now, uh now, than Chinadoes.
So I think there would have tobe a major change in the
(35:40):
ideological perspective that theChinese government takes
towards their companies.
Steve Davenport (35:49):
James, are we missing anything in the Asia
region that we should bethinking of?
That we're probably not,because we are overwhelmed by
China's presence in all theseareas.
Or is buying exposure to UScompanies, who have some demand
coming from Asia, enough forinvestors to get the exposure
(36:09):
they need?
Dr James Thorne (36:10):
Oh, I think, long term, clem's absolutely
right, but I just don't think weshould discount the fact that
traders and hedge funds wouldn'tgun the K-Web right, which is
the China Internet ETF and youknow, to try to get returns.
I mean, think about it, guys.
I mean the S&P is about, youknow, 5,400, about to touch hit
(36:32):
5,400.
Wilson, a perma bear isbasically just thrown in the
towel.
We have yet to get to the FOMOstage, right, and you know as
well as I do fundamentals fromour perspective, our shared
perspective, fundamentals onlygo so far until you're
underperforming your benchmarkand you've got to generate
performance.
So, long-term, I am completelyin agreement with what Clem's
(36:55):
saying about China.
But short-term, could the K-webgo up 100%?
Short-term?
I'm not saying could it go justlike the same thing happened in
Japan right After the in the90s?
You had these massive ralliesin the Nikkei and then it went
back down.
But for the long-term, I thinkChina is uninvestable for all
(37:15):
the reasons that Clem talkedabout.
Steve Davenport (37:19):
All right, that seems like a good spot to end
it.
I appreciate what you guys havebeen doing today.
I really like the insights.
I think they help investors andI think they help people
understand what we're talkingabout, what are the risks and
what are the opportunities.
So thanks Dr Thorne, thanksClem, and we look forward to
(37:43):
providing more podcasts here atSkeptics that are going to help
you to realize your investmentIQ.
So thanks a lot, people andlook forward to next time.
Thanks,
Hello again.
This is Steve Davenport, comingto you from Skeptic's Guide to
Investing.
I'm here with my co-host, ClemMiller, and also a guest today,
Dr James Thorne.
James is a chief strategist atWellington-Altus Private Wealth
in Canada.
He offers us a perspective oneconomics that we are surely
(00:26):
lacking on the science or thesorcery of predicting the future
.
So I want to start.
Today's podcast is about Asiainvesting in Asia.
What are the risks, what arethe opportunities and how do we
take advantage of them?
So, James, when I think aboutyour portfolio, or portfolios
(00:48):
you recommend for clients, howbig a part does Asia play?
Why and where do you see thepitfalls in terms of
opportunities over the next twoor three years in the Asia
markets?
Dr James Thorne (01:03):
in the Asia markets.
So, on a secular, structuralbasis, I think Japan is very
interesting because I honestlythink that, in a world of proxy
wars, I think that theagreements that President Biden
has made with Japan in terms ofthe transference of knowledge
(01:45):
and the flow of capital goinginto Japan is really going to
set Japan into a lost decadebecause of the extreme levels of
debt and the heavily relianceon real estate.
But then again, and going backto Clem's theme, clem's theme on
on stock selection, you know wehave to be honest with
(02:08):
ourselves and suggest that the,the skilled labor force in Asia,
specifically in Taiwan andSouth Korea, cannot get
replicated in the United Statesor North America.
I'll put it that way in theUnited States or North America,
I'll put it that way, and so youknow, and until proven
otherwise, I think you know,Taiwan is going to be the center
(02:31):
of this innovative push into AIand crypto and all of that.
So I think, on a selective basis, I think there are great
companies in Taiwan that youwould want to.
You want to consider at TSMC,if you want to, in South Korea.
You want to go in there andlook at Samsung instead of
(02:52):
Micron in the United States.
Ok, but I do really think thatthe narrative that people are
missing is the fact that in aworld of proxy wars, where
you've got China saddling upbeside Russia, I think it's very
interesting that you know therelationship between the United
(03:13):
States and Japan are gettingtighter, so I'll push it back to
you on that, steve.
Steve Davenport (03:18):
Oh, I like that .
We were talking, Clement and I,the other day, about how this
agreement seems to have goneunder the radar with the US,
Japan and Australia of a newmilitary alliance, and I think
that it's like everything in themedia, some things are
significant and others are not,and I look at that and say
that's a pretty big statementwhen you try to look at all the
(03:41):
things that are going on in theworld, and our focus on Asia is
in working with our allies andstrengthening that military
aspect.
I still believe, as you said,as we talked about with Germany
in our other podcast, japan hasbeen pacifist somewhat
culturally, but also becauseit's pretty good financially for
(04:02):
them as a country when theydon't spend as much on defense,
it allows for more spending inother parts of the economy.
So I guess the one issue that Ithink or idea that you brought
up, is this idea of immigrationand how do we transfer
capabilities from one country toanother.
I listened to a podcastyesterday where they talked
(04:24):
about the fact that, when youlook at what's happening, taiwan
, semi and others are figuringout how their machines could be
locked down if there were an actof aggression and not utilized
by a country who came in andtook over.
So I think that people aregetting ready for a Taiwan event
(04:45):
and I think the idea that ifChina took over those machinery
and couldn't utilize them, andthe company could lock down and
deny access is a veryinteresting.
You know, an asset can be in acountry, but if an asset can't
be utilized, is it really anasset?
So, clem, what do you think ishappening in Asia in terms of an
(05:08):
opportunity, or is it an avoidversus a hold or a buy?
Clem Miller (05:16):
So, Steve and Jim, I think it's a very nuanced
situation.
There is one stock inparticular that I hold, and that
again is Taiwan SemiconductorTSMC, and I hold that one
because it has a virtualmonopoly on the GPU type chips,
(05:39):
especially those that are moreadvanced, from NVIDIA.
Nvidia contracts all of itsproduction out to TSMC.
The risk, however, with TSMC isthat of a Chinese invasion One.
There's a theory that TSMCprovides sort of a silicon
(06:00):
shield and that China won'tinvade Taiwan because TSMC is
there.
I don't agree with that, but Ido think that China will
undertake efforts, if there issome military action, to try to
avoid destroying TSMC.
Also they might decide todeactivate itself per some of
(06:23):
the things that you said, but Ido invest in TSMC because of
this kind of monopoly positionthat it holds.
When you move beyond TSMC, I dolike Japan and I do like India.
With regard to Japan, I hold anETF which is in my personal
(06:45):
portfolio.
Again, we're not recommendingindividual stocks or ETFs on
this broadcast, but I'm justtelling you what I hold in my
own portfolio.
So I hold a currency hedgedJapan ETF, and the reason I hold
that rather than individualcompanies is because I think
(07:05):
that it's very difficult forsomebody not Japan and then
invested equal amounts in allfive Japanese major trading
companies.
So I'm sort of doing that in asimilar way by investing in this
(07:38):
Japan ETF.
I'll say two more things.
Steve Davenport (07:44):
How is ?
Clem Miller (07:46):
What Buffett, it was equal weight.
Oh, it's, the ETF is typicalETF market cap weight, so much
more heavily in, for example,toyota than in others.
But Japan is a fairlydiversified economy, so it's not
like there's one dominant, onedominant stock.
(08:11):
So just two things I'll noteabout Japan.
In terms of the demographicissue, while that's an issue for
Japan and Japanese production,Japanese companies have taken
major strides with respect torobotics, and also they have
done overseas production, so alot of these Japanese companies
(08:37):
produce overseas, and so thefact that Japan is having the
country itself is havingdemographic issues has less of
an effect on the company'sprofitability per se.
So then, the last thing I'd sayabout Japan is that Japan still
has a tailwind from the ShinzoAbe Abe-nomics reforms, and so
(08:57):
they're benefiting from that.
So I'm very optimistic aboutJapan.
I'm also optimistic about India.
I hold the MSCI India ETF andthere again, I hold this because
I don't feel like I candistinguish among individual
Indian stocks, but I'm veryoptimistic about India's
(09:20):
medium-term and long-termeconomic prospects.
Medium-term and long-termeconomic prospects there's a
deepening capital market inIndia, which should be good for
stocks in India, and I will saythat another reason to hold the
ETF is because it's awfullydifficult for investors, even
(09:40):
institutional investors, to beable to invest in individual
Indian stocks.
They have a series of legalrules there.
Finally, as many listeners ofthis podcast know, I have a
particular bugaboo about China.
I hold no China stocks.
I invest in stocks in Europeand the US which have sales in
(10:07):
China, but I do not invest inChina stocks per se.
I believe that there's too muchongoing government intervention
into the workings, especiallyof the Internet platform stocks
(10:28):
stocks Too much intervention.
It's affected theirprofitability and their ability
to generate share price movement, positive share price movement.
And also I find it challengingto be positive about Chinese
stocks in the presence of exportcontrols, us export controls
and trade barriers and generaltensions between the US and
China.
(10:48):
So those are my commentsregarding Asia.
Steve Davenport (10:54):
I'd like to try to get a little more tangible
in this space because I've beenlooking at and we've decided not
to own Taiwan Semi.
Because we think there is toomuch China risk In our
portfolios at Circa, we're notusing Taiwan Semi.
I have felt for a while thatthere's a lot of saber rattling
(11:19):
and there's a lot of indicationsfrom China about how they
control Taiwan, but in the endTaiwan keeps operating and the
world keeps turning and I guessI'd like to know from you two
what's the probability of therebeing some active aggression
from China towards Taiwan.
Is it 25%?
(11:40):
Is it 50%?
Let's say I gave you the nextfive years?
Will we have an event and if so,will it?
We know what Taiwan semi meansto the semiconductor market and
we know what the semiconductormarket means to the
semiconductor market and we knowwhat the semiconductor market
needs to technology.
To me, when that third railgets touched, there's going to
(12:03):
be quite a charge that goesthrough markets and I just can
you estimate or dimension whatyou think the downfall would be
from the markets in Canada andthe US for an invasion and
what's the probability of aninvasion of Taiwan or some type
of control of Taiwan from China?
Dr James Thorne (12:22):
James, Well, theoretically speaking, right,
we know that the Chinese feelthat it's part of their country,
right?
I think the other interestingthing is I'm old enough to have
met people who grew up in Taiwanthat were fluent in Japanese,
because it was occupied by theJapanese.
(12:43):
I, I I'm going to defer to agentleman named George Friedman
and and I'll anchor off of him,and he basically says that, you
know, there's, there's not goingto be a conflict over the in
the next five years, and I, Itend to agree with that.
The way I frame it in my mindis look, there's so much debt
and there's so much that needsto be done domestically within
(13:06):
the United States and China,canada and Europe to basically
deal with the excessive levelsof debt.
That, in my world I frame it isthat there's going to be
detente for at least five yearsuntil we get through all of
these issues.
And so will they use the sablerattling to, you know, to keep
(13:30):
the domestic folks integratedand involved?
Will politicians, you know like, think about it?
You know, nancy Pelosi flew toTaiwan, right?
I mean, will they use this forpolitical maneuvering?
Sure, but I just don't see it,over the next five years,
anything substantially happening.
(13:52):
And I think if China wouldattempt to invade Taiwan, I
think the Americans have themight to basically repel it, and
I just don't think China wantsto get into a war with the
United States right now.
But if it did happen, Steve,it's a major geopolitical event.
I mean, it's a major major.
You know, financial marketsaround the world would
(14:14):
reverberate from something likethat and it's a severe risk
which I just don't think peopleare willing to take right now.
Steve Davenport (14:21):
Yeah, I like to think of.
The people are practical andthey don't have the money for a
war.
They won't spend on a war.
But history has kind of shownsomething different when
countries become desperate, orwhen countries feel like they're
losing the messaging or losingthe, I think Xi would love to
end his career as president andsay I was the one who brought
(14:44):
back Hong Kong, I was the onewho brought back Taiwan into the
mother country, and I thinkit's as much about ego as it is
about finances.
Dr James Thorne (14:56):
Right and Steve .
What I would add with that isand I go back to Taiwan, semi
and the fact that can wereplicate over here in North
America what they have in Taiwan, and if we can replicate it,
then Taiwan does not ceases tobecome a strategic asset.
If we cannot replicate what'sin Taiwan, in the United States,
(15:22):
then I suggest that, givenwhere we're going in terms of
the digital economy and AI and Ithink Clem talked about how
TSMC is at the center, thefulcrum of AI and GPUs then I
just don't.
I think that you know therewill be significant Western
(15:44):
support for keeping Taiwanindependent.
Steve Davenport (15:50):
What do you think, Clem?
Clem Miller (15:53):
I agree with everything that Jim said.
I would just add a what I thinkis a very key point, which is
that in all of this discussionabout Russia and Ukraine being
sort of an analogy or aprecursor to what might happen
with China and Taiwan, there'sone point that's missing from
(16:14):
that equation, and that is thatChina and Ukraine have a land
border and China I mean Russiaand Ukraine have a land border.
China and Taiwan have a prettywide and very choppy, by the way
, straight in between them.
(16:34):
That's going to make it quitedifficult for Chinese forces to
attack Taiwan.
Also, the landing spots thatChinese forces have on Taiwan
are very limited.
I saw a map recently whichshowed that really there are
only a few spots, sort of chokepoints, along the Taiwanese
(16:58):
western coast where Chineseforces can land, and those are
easily defensible.
And then also the fact thatTaiwan is so mountainous that
Taiwanese troops, if necessary,could retreat to the hills and
fight what amounts to aguerrilla war, guerrilla warfare
against Chinese forces, shouldthey be able to establish a
(17:24):
toehold on the island.
So, honestly, I think fiveyears yeah, I don't think
anything's going to happen infive years.
Could it happen eventually?
Sure.
Could it happen eventually?
Sure, if China develops enoughforces.
But a lot of this also dependson what we were talking about
(17:48):
with regard to theJapan-Australia alliance, into
which you can throw in the UK,sometimes you can throw in
Canada, and sometimes you caneven throw in India, and,
believe me, there's got to besome kind of cooperation between
this group of countries andTaiwan.
Dr James Thorne (18:08):
Can I just add one thing, guys, and this goes
back to a book I read by agentleman named Chalmers Johnson
.
I got hooked on this.
You guys know I lived inAnnapolis or the DC area, which
is where the, the Naval Academyis, and you know.
The question is you know whydoes?
In downtown Annapolis we haveso many great sushi restaurants?
(18:29):
And it's because when youbecome a mid and you graduate,
you typically go to Okinawa,right and and and.
So what is Chalmers Johnsontalking about with regards to
the relationship between theUnited States and Japan is and
I'm going to put a number out,and it's wrong, but there's a
significant, double digit numberof military naval bases in
(18:51):
Okinawa, and I would suggest youlook at where that island is
relative to the South China Sea.
Look at where that island isrelative to the South China Sea.
And look, I've known you guyslong enough to know about when
they started building, whenChina started building the
islands right in the middle ofthe South China Sea, and we've
also had long discussions aboutKissinger's book, about how
(19:12):
China doesn't use chess as agame of strategy.
They go china doesn't want tobe surrounded, so do we do we
take?
Is china just emulating itstraditional defensive measure,
right, and doing what they'redoing, or are they?
Have they changed and are theybecoming an offensive military
(19:33):
power?
I that that that's what thequestion mark.
But what I think people need tounderstand, or at least where I
frame it, is there is asignificant presence in the US
military on Okinawa, which isjust, it's not that far away,
not that far away from Taiwan.
(19:54):
So I think, for now, I thinkeverything is okay.
But you know, steve, you ask isit 10, 15, 20 in my lifetime?
Anything's possible in alifetime and of course there are
possibilities of politicalmissteps, right, and to get into
the situation.
(20:15):
I just think right now it istoo important as a strategic
asset for the United States thatthe safety of Taiwan is ensured
for the time being.
That's my narrative.
I have nothing more than I haveno insight into this.
But it's just for me, readingbooks and doing what I do.
Clem Miller (20:38):
Yeah let's not so let's not forget, let's not
forget that China also benefitsa lot from Taiwan already,
because a lot of those TSMCchips are manufactured on behalf
of Chinese companies andthere's a lot of other trade
between China and Taiwan, like,for example, apple handsets and
(21:01):
other things, sets and otherthings.
So there would be a major Imean, apart from just, you know,
a depletion of militaryresources on China's part there
would be economic conflict thatmight affect the Chinese
mainland, the Chinese citizenry.
And you know the one thing, theone thing that you know China
(21:27):
is not a democracy, but it's not.
Even though China is not ademocracy, it's still responsive
to unrest at the popular levelin China.
And so if you have economicproblems, serious economic
problems, that result from aconflict with Taiwan, you know
that could impact the popularityof the regime, and so you know
(21:52):
Xi might know that andanticipate that and and, as a
result, perhaps not invadeTaiwan because of that fear.
Dr James Thorne (22:04):
Because of that fear.
Yeah, I would add, is to meit's also I think there's been
some great research coming outof the Council of Foreign
Relations on this in terms ofquestioning the term
globalization and actuallyidentifying.
Look, it's not globalization,it's called regionalization.
The only economy in the worldthat really globalization works
(22:25):
is the United States, becausethe United States has ceased to
basically fully integrate withMexico and Canada, but China is
integrative, fully into, if youlook at the trading block of
Asia as we speak.
So, you know, do they movethings around to get around you
know, tariffs and whatnot?
(22:46):
I don't know.
But I think the interestingthing for me is when you parse
it that way and you've got sucha respected institution as the
CFR coming out and providingclarity to the situation.
I think and this goes back toour comments on Japan I don't
know how much the Japan carrytrade has financed the real
(23:10):
estate market in China, like,what are the linkages between,
you know, the cheap money andthe zero interest rate regime of
the BOJ and then financing thereal estate market?
What are the intricacies, whatare the tests, the
interconnectedness between allof these Asian economies?
And suffice to say, I think,because of that level of debt
(23:35):
being so high, in the fact thatyou know Xi is now, in his
policies, timely to attack atleast you know the excessive
urbanization in China.
But I think we've got a periodof time of everybody's going to
calm down and we're going to tryto work our way and work our
(23:57):
way out of this debt mess, andthat's how I view it.
But I still I do not think thatChina is as isolated as some
politicians make us believe theyare.
Steve Davenport (24:11):
No, I believe that your points are wrong.
In terms of a positive scenario, I'm a little bit skeptical, so
I tend to go towards thepossibility for a mistake, the
possibility for a mistake.
And I saw the recent, theassassination in Japan, the
assassination recently in Europe.
I wonder sometimes whetherthere's a chance for some event
(24:36):
that we're not expecting, whichis that black swan type that
could cause us to suddenly see aflare up in Asia and China not
wanting to look weak and alsohaving unrest at home.
I'm not sure.
I agree with Clem that unrest athome means that they don't act
(24:56):
in Taiwan.
I think it's a gooddistractionary tactic to move
the people towards thisnationalistic ideal, move the
people towards thisnationalistic ideal, and I think
that we've still got this.
You know, leader in North Korea, that I don't think anybody has
a real eye towards what's goingto happen there.
(25:17):
I see something you knowunexpected.
You know North Korea tries tolaunch something against Japan
and you know everyone has toreact, everyone has to line up
behind their partners so yeah, I, I steve, I'm gonna, I'm gonna
invoke brzezinski, zygmuntbrzezinski, to show the table I
don't think.
Dr James Thorne (25:37):
I just don't think.
China, I mean, the thing I findinteresting about china is they
don't have free capital flowsand they they're not free
floating the renminbi or theyuan.
And so I suggest that I think Ihear you and I think you know,
(25:59):
as investors, and if we talkabout it, it's you know what is
the, what is your strategy, if,as and when you know a flare up,
if China does invade Taiwan, Ithink we all have to have
contingencies, and that's whatinvesting in portfolio
management is all about.
But I just don't think.
Look, I mean, let's be honesthere.
The United States needs tofinance its debt, and two of the
(26:20):
largest purchasers of its debtis Japan and China.
Let's just be honest about that.
We're in a period of fiscaldominance, just like we were in
post-World War II, and so Ithink, after the next four years
, when the United States has torefinance its debt and guys, I
will come down on I do notbelieve this hire for longer
(26:42):
facade that we get from centralbanks I think Waller is totally
misplaced.
Let's just look at Target'snumbers this morning.
Ok, the private sector isbuckling and we have excessive
amounts of debt.
And oh, by the way, eitherJapan, europe and China
purchases the US debt or we gointo debt monetization.
(27:05):
So this foray into modernmonetary theory by the
progressive left in Canada andthe United States and maybe and
let's throw Europe in there tome is over.
There is no free lunch.
So the way I frame that morespecifically is we get a detente
(27:26):
, is we got to refinance thisdebt.
And we can't refinance thisdebt when the Fed funds rates at
350.
We have a yield curve in theUnited States, the longest
inversion ever and the deepestinversion ever.
And, guys, 25 basis points isnot going to un-invert the yield
(27:48):
curve and so the oxygen to theprivate sector even if they cut
50, is not going to get it in.
Look, there's real estate.
I mean, talk to folks on theground.
I talked to somebody inPhiladelphia the other day.
Right, construction is gone,there's nothing there.
Or let's use it if we'll goback to our previous employee
(28:10):
when our band was back together.
Right, there's no files.
Getting through senior loan,like investing or banking, is a
volume business.
Right, you borrow short and youlend long, and it doesn't last
when you have an inverted yieldcurve.
So that's where I come down andsit there and go.
That's to me the gating factornow, steve and Clem.
(28:35):
But once we get through thisand we finance all this paper
and everybody's happy and theygot another five years, then all
hell could break loose right?
And that's kind of how I'mframing it, yeah.
Steve Davenport (28:48):
I mean, I love to think that we have our
finances and we are moreeconomic animals than we are
political animals, but I'm notsure that history is going to
tell us that.
I think that when we look atmessages and stories as you talk
about, I see the story beingthat China wants to be number
(29:10):
one in the world.
They want to be the number oneworld economy.
Their involvement with Iran,their involvement with Russia,
their involvement with anycountry who will help them build
the road, is not really goingto ultimately drive their
decision making.
I feel that the China nationwants to unify and wants to have
(29:36):
one ideal, and that is thatthey are the chosen ones.
It's amazing to me how similarthey are to Japan in this idea.
They don't allow immigration,they don't have a feeling that
they need other cultures to be astrong country, and I think
(29:56):
that's their biggest weakness,because they don't take the
inputs that could come fromother countries and people
coming to their and making theircountry stronger.
The United States does, and inall of its immigration mistakes
it's still more open than it'sstill been, a key part of why
we're so dynamic and why ourgrowth rate has continued to
(30:18):
maintain, while other countrieswith a more closed economy will
not.
I believe you're right, james,that we need to deal with the
debt.
I'm just a little bit um lesssure of our political will and
I'm a little less skeptical onthe uh ability of our leaders to
(30:38):
do that.
Dr James Thorne (30:39):
So in a, in a presidential, from a, from afar,
sitting here on lake ontariolooking into the states.
It's kind of it's.
I love it because it's like Iwould be.
I'm at a party back in college,sitting at the side watching it
all go down right, and what Iwould say to you that I find, in
a presidential election year,that I think the nuance that is
that is so impressive about,about what's going on in DC, I
(31:02):
mean there's a lot about,there's a lot of problems, but
irrespective of whether you likeMr Biden or Mr Trump and let's
leave them aside one of thethings that has happened is that
there isa unified industrialpolicy to focus on China and to
focus on making sure that theUnited States is unified,
(31:27):
irrespective of the politicalparty, towards China.
I think the Biden administrationengaging in Japan is just an
additional layer that reallystarted I can't remember if it
was you or Clem talked about,you know, the Abe and the Arabs,
right?
I mean, we worked together whenthat all came down.
(31:48):
Japan is still using aconstitution that was written by
MacArthur after World War II,right?
So hey, you know, let's make ifwe're going to play a world of
proxy wars, let's make Japan anoffensive military power and let
(32:09):
them basically patrol the SouthChina Sea.
China has a long memory aboutthe wars that it has fought with
Japan, right, and so I thinkit's going to be very so, guys.
I am very bullish on riskassets up until the end of this
decade, and you can see theunderlying is.
(32:34):
The gating factor is we allhave to refinance the debt at
lower rates.
We all have the same problem.
Once that happens, I think the2030s are going to be really,
really, really, reallyinteresting.
That's my two cents.
Mike GREEN, that's nice, I likeit Interesting, clem, do you
(32:56):
feel?
Steve Davenport (32:57):
Let's wrap it up here how do you feel about
Asia and what would have tochange to make it more
attractive to you in terms ofhaving more faith in the
company's ability to execute inan environment where China is
being?
You know, if we were to startto see a relaxation of some of
the tariffs, what is it going totake for you to become bullish
(33:21):
on China?
Clem Miller (33:25):
Hard to see at this point, but I would say that you
would need an ideological seachange in how the Chinese
government, and specifically theCCP Chinese Communist Party,
you know views its rolevis-a-vis companies in China.
(33:45):
There'd have to be a tremendoussea change in terms of how they
look at things like data, howthey look at things like, you
know, control over information,how they look at, you know what
companies can do in terms oftheir ability to work overseas,
(34:09):
the ability of foreign companiesto work unfettered in China, of
foreign companies to workunfettered in China.
We don't have any of that.
It's a very, very ideologicallyinfused system that impacts
investments and returns oninvestments and you've seen that
(34:30):
over the last 10 years,essentially, especially over the
(34:58):
last five years, over the last10 years, it's flat.
You wouldn't have made any moneyin China.
Over the last five years.
You would have lost money.
Compare that to the rest of theworld where you would have made
a lot of money, where you wouldhave made a lot of money.
I mean, there's just no,there's no.
I have no faith right now inthe ability to to make more
(35:18):
money in uh in China, or even tomake the same amount of money
in China, as you would in uh inother parts of the world,
including, by the way, europe.
I think, uh, I think Europeoffers better opportunities, uh
right now, uh now, than Chinadoes.
So I think there would have tobe a major change in the
(35:40):
ideological perspective that theChinese government takes
towards their companies.
Steve Davenport (35:49):
James, are we missing anything in the Asia
region that we should bethinking of?
That we're probably not,because we are overwhelmed by
China's presence in all theseareas.
Or is buying exposure to UScompanies, who have some demand
coming from Asia, enough forinvestors to get the exposure
(36:09):
they need?
Dr James Thorne (36:10):
Oh, I think, long term, clem's absolutely
right, but I just don't think weshould discount the fact that
traders and hedge funds wouldn'tgun the K-Web right, which is
the China Internet ETF and youknow, to try to get returns.
I mean, think about it, guys.
I mean the S&P is about, youknow, 5,400, about to touch hit
(36:32):
5,400.
Wilson, a perma bear isbasically just thrown in the
towel.
We have yet to get to the FOMOstage, right, and you know as
well as I do fundamentals fromour perspective, our shared
perspective, fundamentals onlygo so far until you're
underperforming your benchmarkand you've got to generate
performance.
So, long-term, I am completelyin agreement with what Clem's
(36:55):
saying about China.
But short-term, could the K-webgo up 100%?
Short-term?
I'm not saying could it go justlike the same thing happened in
Japan right After the in the90s?
You had these massive ralliesin the Nikkei and then it went
back down.
But for the long-term, I thinkChina is uninvestable for all
(37:15):
the reasons that Clem talkedabout.
Steve Davenport (37:19):
All right, that seems like a good spot to end
it.
I appreciate what you guys havebeen doing today.
I really like the insights.
I think they help investors andI think they help people
understand what we're talkingabout, what are the risks and
what are the opportunities.
So thanks Dr Thorne, thanksClem, and we look forward to
(37:43):
providing more podcasts here atSkeptics that are going to help
you to realize your investmentIQ.
So thanks a lot, people andlook forward to next time.
Thanks,
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