Input 22.09.2021

“Life is divided into three terms – that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present, to live better in the future.” William Wordsworth

While Chinese regulators have urged Evergrande to resolve its debt situation, the government has so far stayed silent on whether it will provide financial support.

In 2016, founder and chairman Xu Jiayin was the eighth-richest person in China, worth $4.9 billion. In 2017, Evergrande stocks, share price, profits and revenue surged almost three to four times in value, propelling Xu Jiayin to be one of the wealthiest people in Asia. As of June 2019, his net worth was reported as US$30.4 billion, making him the third-richest person in China. Personally, I am always surprised to which extend big players access debt to expand their business, make headlines in all media only to shake up global markets through spectacular defaults. The world’s most indebted developer must pay bond interest totaling $669 million in note coupons due through the end of this year. The next major bond principal payment hits in March, the first test of $7.4 billion of securities due in 2022.

Market reactions on September 20th 2021 were “interesting”, especially since the stock price in https://en.wikipedia.org/wiki/Evergrande_Group did suffer for a while, and the price level is back to levels from 2010. Wikipedia gives us some background of the company, and to some point it tells us a success-story. But then President Xi Jinping and the Communist Party’s Central Committee have laid out a plan (a 5000 word statement) for a ‘new era’ in which the party has better control over private businesses in China.

Alibaba Group Holding Ltd. pledged 100 billion yuan ($15.5 billion) over five years toward Xi Jinping’s “common prosperity” vision, becoming the latest tech giant to bankroll China’s broad aim to share the wealth. This is quite a turnaround. Previously, private business was not considered very earnest for party membership or influence, but it has gradually entered the heart of the regime…

https://www.mondaq.com/china/land-law-agriculture/89998/ownership-of-land-in-china. Evergrande is one of the largest property developers in China. But land is either subject to government ownership or collective ownership. In principle, municipal land is subject to government ownership and land outside cities is subject to collective ownership. However, one can obtain the right to use the land. Allocated land can be used only for a specific purpose and cannot be assigned. Though the default of a property developer and the consequences might not be directly comparable to historic events in the real estate business as we know them.

A new dimension, we referred to the Reddit community in our «Input 01-02-2021», is the impact of social media influencers, being on Facebook, YouTube, Twitter or Instagram, has taken an important turn. The recent financial phenomenon has completely revolutionized the way the industry now works. With some TikTok influencers now making up to $500,000 and surpassing their banker counterparts, it is clear that the nature of Wall Street is changing.

As an example Elon Musk, the founder of Tesla and SpaceX, has engaged in cryptocurrency and stock market trading while commenting in his Tweets. According to CNBC, a February 4 tweet from the tech billionaire caused the value of Dogecoin, a cryptocurrency inspired by a meme of a Shiba Inu dog, to surge more than 50%. In 2018, the Securities and Exchange Commission (SEC) charged Musk with market manipulation after tweeting that he was considering taking Tesla private; this tweet resulted in a 6% increase in Tesla’s stock.

Most of the influencers have no Wall Street experience, nevertheless their followers react on their comments. Reaching younger and new clients has always been a hurdle for finance firms, but with the new introduction to Wall Street influencers, this is no longer a problem.

We at Jacot Investment Management have our roots in investment management. Yes, we follow the latest market developments and even some tweets and from time to time some influencers. But we would never ever base our decisions on short term market gyrations Investment decisions should always been made according to a process combining relevant information, technology, and long-term experience. We pursue a consistent methodology for our clients to achieve their investment objectives irrespective of the latest market noises and report our results transparently Allocations-Tool.

As always we appreciate your reflections on our thoughts, and are looking forward to discuss different views

Best wishes for good health

Bjoern and the entire JIMAG Team