This year, emerging markets have run ahead of the S&P 500 after years of underperformance. Thanks to a declining dollar and continued monthly inflows, emerging markets have been a shining star in the 1st half of the year. Now the question is: will the trend continue? Let's take a quick look at a couple of charts.
While most of us are used to seeing American companies expand around the world, it is still rare to see Chinese companies coming to the US. That appears to be changing as venture backed companies are raising huge amounts of money to expand globally. Alibaba just held a huge conference in Detroit and now one of their investments is coming to the US -- bike sharing. Chinese bike sharing is a massive on demand service - think of it as the Uber of bikes but much bigger with faster growth. Now the two Chinese giants in the space, Mobike and OfoInc, are eyeing the potential of international expansion and they are running trials in the US. While it is still in the early going, Chinese bike sharing is booming and these two companies have the benefits of experience of millions of daily riders. Both companies have raised huge amounts of money this year at over $1 billion valuations.
The 4th time was the charm for mainland Chinese stocks which were rejected from MSCI for the past three years. MSCI announced that domestic Chinese stocks will be included in MSCI's global emerging-market index for the first time -- inclusion will begin in 2018. It is largely a symbolic victory for China as they will finally be included in the popular MSCI indices but with just a 0.7% weighting.
On May 24th, I attended the first Gold Event in the CKGSB Knowledge Series at the new offices of White & Case. Dr. Xiang Bing, Founding Dean of CKGSB and Professor of China Business and Globalization, discussed China's Newly Dynamic Economy and the Rising Role of the Chinese Entrepreneur. FYI, CKGSB (Cheung Kong Graduate School of Business) is the Beijing-headquartered business school that Dr. Xiang established 12-years ago with the support of the Li Ka Shing Foundation. It was China’s first privately-owned business school, and these days perhaps the most well-known private Chinese institution outside the country.
With our world getting smaller daily, it is imperative to keep one's eyes and ears open to what's happening in global economies, especially the world's second largest economy. On May 24th, I attended the 2017 Peking University Guanghua New York Forum at the New York Public Library. The forum featured renowned speakers re-imagining China’s business landscape for an audience of 200 Chinese and international industry leaders, academics, and innovators to discuss, debate, and exchange ideas. Here are the highlights.
China has stepped to the forefront of solar energy with its slogan "Promote green development! Develop clean energy!" The country's National Energy Administration revealed that its solar power production more than doubled in 2016, hitting 77.42 gigawatts by the end of the year. China is now the world's biggest generator of solar-based electricity in terms of capacity. Of course it has a long ways to go relative to its population. Japan, Germany and the US each has roughly 40GW of installed capacity.
With over a 1.37 billion people, Chinese spent more than half a trillion dollars eating out in 2016. In a recent report, Dianping Meituan, which offers food-ordering and delivery services, estimates the country spent 3.5 trillion yuan ($507 billion) dining out in 2016. This number eclipses the GDP of Sweden ($496 billion), Belgium ($455 billion), Norway ($387 billion) and many other countries.
Another interesting fact from the report is that the country's favorite meal out is hot pot with roughly 22% market share. For those not familiar with hot pot, it consists of a simmering metal pot of stock at the center of a dining table. While the pot is kept simmering, it is basically a do it yourself meal as you cook your favorite meats, seafood, veggies, dumpling and noodles. The cooked food is usually eaten with a dipping sauce.
About five years ago, I was traveling on business to Los Angeles. I was surprised to find kiosks at Alamo that processed my reservation, assigned my rental car, and directed me to the spot for pick up. As I drove out, I marveled, "Wow, I was in and out of there without talking to single person!" Today, this once novel concept is quickly becoming common place.
At the recent Berkshire Hathaway shareholder meeting in Omaha, vice chairman Charlie Munger said that he thinks that stock market investors may be able to find better investment opportunities in China. He said, "I do think the Chinese stock market is cheaper than the American stock market. And I do think China has a bright future."
While many of us in America look to Silicon Valley for innovation, perhaps we need to look even further west as China's e-commerce giant JD.com is leading the way in drone delivery. The company has already delivered packages via drone and last month announced plans to build 150 drone launch facilities for unmanned aerial vehicle delivery (UAV) parcel delivery. They have already secured government approval (which Amazon has had trouble with in the US) in select provinces in China to make deliveries.
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