A Summary of 2024 + what to expect in 2025

It is about time again to summarise on a few key points on what has happened in 2024, what has worked for us, and what we expect in 2025. Before diving a little deeper into context, may we wish all of you a peaceful, healthy and positive year of 2025!

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Investment returns:

While most of the the world’s focus were mostly on the magnificent 7 and the broader index, they have returned: (as of 30th December 2024 close)

S&P500 +23.84%

Nasdaq +29.81%

DJIX 12.96%

Microsoft +13.82% (P/E 35.08x, P/B 10.9x)

Alphabet +37.22% (P/E 25.56x, P/B 7.51x)

Apple + 31.64% (P/E 41.48x, P/B 66.93x)

Nvidia +177.72% (P/E 54.28x, P/B 51.09x)

Meta+67.68% (P/E 27.9x, P/B 9.07x)

Amazon +45.65% (P/E 47.29x, P/B 8.98x)

Tesla +67.99% (P/E 114.36x, P/B 19.16x)

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And for Hong Kong China, our favourite names have generated the following: (as of 30-Dec-24 close)

Hang Seng Index +17.82%

China Mobile +27.76% (P/E 10.8x. P/B 1.09x)

Petrol China +31.35% (P/E 6.25x. P/B 0.68x)

Alibaba +11.79% (P/E 16.64x. P/B 1.50x)

HSBC +34.29% (P/E 7.77x. P/B 0.91x)

Guangdong Investment +25.26% (P/E 15.16x. P/B 1.01x)

SMIC+60.12% (P/E 58.44x. P/B 1.58x)

BOC +46.27% (P/E 4.53x. P/B 0.45x)

CCB +53.86% (P/E 4.38x. P/B 0.47x)

China Unicom +63.73% (P/E 9.88x. P/B 0.57x)

Sensetime +29.31% (P/E N/A, P/B 2.22x)

By comparing side by side, while being less talked about, a lot of SOE names in Hong Kong has generated very meaningful returns, while trading at much more reasonable valuations, with higher dividend payouts, and returning capital back to shareholders. SOE names with Low Debt, Stable cashflow and businesses, with high dividend payout has outperformed ever since we started the strategy in Jan-22.

With the backdrop of a more accommodative monetary and fiscal policy from the Chinese Government, and a mild recovery in its economy, while the RMB might depreciate due to the countering of potentially additional tariffs from the Trump’s administration, we believe the equity market is still undervalued and shall generate decent returns in the years to come.

Different investors and commentators might have different views about Hong Kong and China, but investment returns and numbers do not lie, and it has generated much better returns with the “risks” that we took.

What do we expect in 2025?

-????????? US markets remains to be expensive, and most of it is driven by the AI “boom” and passive fund flows into the US in forms of US Dollar, US Equities, and Fixed income. But due to the exciting future that the incoming administration can provide to the market, with the backdrop of further rate cuts, tax cuts, and deregulation, we prefer to have exposure into the SME segment of the US markets, purely driven by asset allocation, and NOT valuation perspective.

-????????? Inflation: The streets are expecting some sort of an inflation bounce back towards the end of 2025. We believe chances are at 50/50 and we think it will be unwise to form any sorts of view against it. Invest with it, rather than against it.

-????????? US Dollar: the Dollar shall remain strong due to the same reasons, not because of the US is strong, or inflation might bounce back, causing the dollar rates to rise, but because the opposite side is realistically weaker in terms of economic outlooks, or devaluation of its currency i.e Europe, Japan, China.

-????????? China: Will continue to be stable, and focus doing their own thing i.e upgrading their technology, manufacturing capabilities, and domestic consumption. SOE names with low debt, stable cashflow and businesses with high dividend payout will remain the best spot to stay invested.

-????????? Japan: Its currency should remain weak as its better for the equity market and local investments. However, the government will have to fix the issue of allowing the local citizens to make more money, and to feel richer, rather than allowing foreigners (be it tourists or investors) to gain at the expense of its local citizens/ taxpayers money and its economy.

-????????? Europe: Will remain weak and not focused, and continue to underperform versus rest of the World, unless there are positive structural changes, which at the moment is not expected. This year's winter might be colder than previous years, adding more pressure on Nat Gas prices. Lets not forget Europe is still in an energy crisis after the Nord Stream pipelines were sabotage and Europe not wanting Russian Gas.

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Summary:

For our own strategy that was relaunched in Sep-24, it has generated +8% in the 4th Quarter.

For our year to date return of our strategy (up to 30-Dec-24), it has delivered +45.6% return

For our Growth Asset Allocation model, it has delivered 23.3% return up to Nov-24. We expect the full year to deliver 25%p.a. for the year of 2024.

One comment that resonated well with us this year was from Howard Marks when he mentioned something along the lines of “If the top down approach is not working well due to the uncertainty of geopolitics and macro environment within different countries, then go back to the bottoms up approach, because numbers do not lie.”

Although historical results do not determine or predict future results, we believe remaining sane, making sense, and have a value investing approach shall provide the best returns to our clients and ourselves, while also having a decent level of risk management in it to ensure we are not overpaying for something that simply appears to be too expensive, or betting on something purely based on a hype, or hoping it might work.

Wish everyone to have a healthy and prosperous 2025, and we hope the world can be a more peaceful place for everyone from 2025 onwards!

Disclaimer:

This post is circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives or tolerances of any of the recipients.

Additionally, our actual investment positions (if we have any) may, and often will, vary from its conclusions discussed herein based on any number of factors, such as investment restrictions, portfolio rebalancing and transactions costs, among others. Recipients should consult their own advisors, including tax advisors, before making any investment decision.

This post is not an offer to sell or the solicitation of an offer to buy or sell the securities or other instruments.

The views expressed herein are based on our own appraisal of the applicable facts at the date hereof and are subject to change without notice. We shall not be liable for any errors, omissions or opinions contained herein and such information and opinions expressed should not be considered as a recommendation to take (or refrain from taking) any action in respect of any product. The information and opinions contained herein have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. We may have a significant financial interest in one or more of the positions and/or securities or derivatives discussed.