This has been one of the most eventful years since I started investing, I would say only 2008 tops it for me. War in Ukraine, crazy inflation, huge rate hikes, collapsing currencies and China who locked in their population to keep dynamic zero. And with all these events happening, my return for the year is anything else than spectacular – a meager -3.5% (but great vs MSCI World at -18.3%). Last year I dodged being down with a slim margin, but this year, unfortunately, became my first down-year since the blog started. I’m actually surprised I fared as well as I did given I was down 20% in October but with the strong Hang Seng rebound I was back in the game by December. One can try to be a stock picker like me, but in the end Beta matters a lot for your performance. Being allocated mostly to European and Chinese stocks I’m proud how much I out-performed these markets both this year and previous years (since the blog started MSCI World Excluding USA is up 17% and I’m up 123%). At the same time it has been such a big mistake to be so underweight USA previously. 2022 was the first year in a long time where Hang Seng did actually not perform worse than MSCI World, so finally I did not fight a headwind and as such I was back to printing alpha!
So without further ado here are the 2022 results (as always results in USD)
The share with holding period less than 1 year where bought during 2022 (best purchase Vitasoy, worst purchase Anicom).
Best stocks in 2022 – PAX Global and Vinda
Worst stocks in 2022 – Modern Dental & Greatview Aseptic
Instead of making a massive comment about these stocks here I will do a separate write-up of these four holdings, this also ties into my topic below about exposure to Chinese stocks – to be continued!
A number of holdings were sold during the year:
Overall the holdings I sold gave a positive contribution to my 2022 performance of about 3.5%. (press to read more)
RaySearch – Full position sold after CFO was fired, I needed time to see there was no account scandal in the works on the back of this. I thought I had done my homework so I was quite confident to enter again after a few quarterly reports. I have now over the past months built this up to a full position again (1% positive contribution in 2022 for the buy/sell part)
Dairy Farm – After many years of poor performance especially for the supermarket segment I have now concluded the Jardine family are awful stewards of their big conglomerate. You think you are buying value but you end up in a trap, probably never again will I touch their companies. Unfortunate as the assets they have are really great. I do think this still is a re-opening play that has not repriced yet, so for the short term punt this could yield a really nice bounce. I exchanged this 1:1 for Vitasoy which has been a star performer in the portfolio (Dairy Farm flattish contribution in 2022).
Agnico Eagles Mines – This was my small gold-hedge position in the portfolio, did not work out, but that’s OK it was a hedge after all. When things calmed down in the second half of 2022 it was time to let it go (-0.5% contribution in 2022).
Irisity – One of my larger investment disappointments ever. I was expecting this small-cap to really create some big alpha in my portfolio. I have confirmed over conference call that users of their software systems is great. I can’t for the life of me understand why they didn’t manage to sell this in to G4S and other security companies at a large scale and a large profit. The largest competitor in this was from China, but with politics involved no US/EU player would buy the Chinese surveillance systems. Under other leadership this could still be a big company in the future, but for now it was a total dud and a pretty large detractor in my portfolio (-1.5% contribution in 2022)
AK Medical Holding – I believe in the product, hip and knee replacements for old people in China. But the central procurement totally threw this company off its game, sure they are now one a major share suppliers under the central procurement with a 20% market share (this partly saved my bacon) so the share rebounded actually 100% from it’s bottom. I did not want both China exposure and be at the whim of the CCP for if I get to keep any margin on the hip replacements sold, so I’m out. Even with such an impressive rebound it was in total a big loss for me (although in 2022 it gave positive performance around 1%)
Swedish Match – I have written a whole post about this buy-out by PM, I’m sad I lost a company that I thought would be a long term strong compounder, but I also got a very nice return in a year when much else is down. Hopefully I can recycle the gains into something that will perform at least almost as strong as Swedish Match. (+3.5% contribution in 2022, why it’s not more is because SEK lost so much against USD)
Enquest – I wanted to diversify my oil exposure to two companies, I did not even manage to get further than a starting position before tax issues in UK showed up, I decided to reverse my decision and exited the position I had just started building (flat contribution).
Should I continue having such a large allocation to China?
For many investor the Ukraine/Russia war has been the largest event to consider, for me personally it was rather China. The war also pin-pointed a China risk which has been talked about a long time but mostly ignored, the Taiwan situation. The other situation which already started during Covid is that the world has realized it can’t rely on China for all manufacturing, this will be a headwind for many years to come. These two factors and China’s leadership behavior during Covid gave me a lot to think about.
It was clear that basically most international investors sold China or underweighted China as much as they were allowed in their portfolios during 2022. The sentiment reached a level of negativity I could not have imagined. Even hearing what fund managers here in HK some were saying, some where so negative that although their expertise was the Chinese market, they planned to convert their strategy to investing in the US instead. Going into 2023 basically all weak hands have already been shaken out. That does not mean the only way is up, but the throwing the baby out with the bathwater selling is probably over by now. My idea all along has been to stay in this market to pick up babies that were unfairly thrown out. I think my large positions in PAX Global and Modern Dental Group are good examples of such. But the negative views on China from international investor does scare me a bit, also some holdings does rely much more on the Chinese market. So to conclude as especially Europe got cheaper already and US is getting there, I will try to allocate to more cases in developed western markets. That will also mean selling out or reducing the position size in some HK listed holdings. A good late example of a US investment idea I really like is ZimVie. I even have another US investment which will enter the portfolio in the coming days. I will try to find time to write up both of these companies soon!
Portfolio since inception:
Lastly I would briefly like to discuss you – the readers. Love it when you engage with me, but the fact is engagement is down and visitors numbers too. I have been playing with the idea of starting to use substack, I’m not sure in what format though. One idea has been to push out a few more stock ideas than I currently do. Basically today I only write up what enters my portfolio, but I never write a word about all the stocks I research that does not meet my bar. I have been thinking of to perhaps keep a free section here on Globalstockpicking.com with very brief pitches and for the ones that want deeper info and full write-ups, does would be pay-walled at the substack.
As can be seen from the stats where you readers are from, I would probably get higher engagement if I wrote up more European and US stock cases. At the same time what I find a bit sad with that is that there are so many out there doing that. There are very few like me that shares freely online stock ideas of smaller Hong Kong companies. Would appreciate feedback what you want to see going forward.
The macro does not look great for 2023, but I’m still hopeful that I can deliver a positive return in 2023 after two quite un-remarkable years from a performance perspective. All the best to you all and let’s kick ass in 2023!