Phones are boring
Remember when telecom stocks were sexy? The 🐿️ most certainly does. The jumbo telecom privatization IPOs of the 1990s were the game in town for the capital markets bankers of that era. At the beginning of the decade, the giant UK Government share offerings had happened (TV advert for ‘BT3’ below) but were rare and a $100m IPO was still a decent ‘meal ticket’ for an investment bank.
A few years on and deals like that almost landed in the ECM ‘remainders’ bin. In 1996, Deutsche Telekom floated 25% of its shares for $13 billion. In the next 2 years, Telstra and NTT DoCoMo also joined the ‘11-digit-$’ IPO club. As part of that wave, the original iteration of China Mobile (China Telecom HK) went public, raising $4.2bn at a market capitalization of $18.7bn.
28 years on, China Mobile is worth $240bn, and up over 150% since November 2020 when it was effectively banned from investment by US investors by Executive Order 13959, titled “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies”.
I confess to have forgotten that the telcos had made it to the US sanctions list until I was reminded by a subscriber last week in The Drey. Not sure I had even noticed that they had been kicked out of the main China ETFs. It’s hardly surprising, mobile phone companies have hardly been the talk of the recent bull market - in any geography! How wrong we narrative monkeys have been - they have been in a stealth bull market of their own.
A word of warning and a🐿️ commitment: Yes, I am going to discuss a theme (Chinese telcos) that over half of my readers cannot currently invest in. However, I shall pair it with an un-sanctioned alternative that offers up a similar style factor.
In August of last year, in Psst! You're long China anyway!, I urged readers to shed their ‘fear of [being] Gazprommed’ (h/t
) and join the 🐿️’s shopping spree in the ‘bargain aisle’ of Chinese shares. My confidence around the call (which back then took quite a bit of heat from some quarters!) was certainly not predicated on a strategic pivot by the global asset allocator community.“Let’s face it, everyone is long China risk already anyway! Most just own it at the wrong price. The same asset allocators that have wholeheartedly embraced the volatility laundering of the private asset markets have determined in their wisdom that the equities that represent 19% of global GDP should be shunned on fiduciary grounds. Oh, the irony!”
I reasoned that the critical driver of any re-rating would likely be from Chinese capital being hoarded offshore by exporters; a TINA1 effect for domestic savers in China who were earning shrinking rates of return in RMB fixed income and bank deposits; as well as potential new demand created by China’s increased ability to buy commodities in its own currency (that would need to be recycled into RMB assets).
“Chinese risk assets have a new audience. Little by little, China is starting to pay for its commodity imports in its own currency. What do those commodities exporters do with the Yuan? Chinese rates have outperformed US rates dramatically in recent years? Seems like a decent parking spot for those commodity exporters. Next stop (very cheap) equities? Quite possibly.”