Is China The Posterboy for Recovery?

China is out of lockdown but has the economy really kicked back into superdrive. This is an economy that has never seen negative growth let alone recession. Could this be the start or will lit be the shining light of example for the rest of the world post-corona?

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Video Transcription:

Hey guys and welcome to Friday afternoon and well this week has gone quick hasn't it but anyway I've just realized that livestream I think the livestream still there because yes so today is China the poster boy for recovery I think the the thing that a lot of people on a lot of news articles have been writing about is the fact that you know China's had this amazing v-shaped recovery and so I was looking to it a bit harder and I was looking at it and actually what they did today too was they announced that they'd actually had a effectively a drop of 6.8% so you know that's I mean that's substantial that's year on year two so I don't know I have an ostrich if that the figure was last year but anyway it's six point eight percent drop you know across there are their economy which is quite substantial I mean in normal times that's massive but actually in this day and age it's probably not that bad actually but you know.

China continues to amaze people in what they're doing in what they did and the approach to it and yes there's a lot of rhetoric about you know make them pay and it's their fault and all that which you know having read hundreds of articles now spent hours and hours you know looking into this I just don't see it I mean yes they should have come out with the thing a lot sooner but actually you know what the WHO did everyone did but you know what nobody listened and it's you know even if they had a said anything clearly when they did say we still all ignored it you know and so that's one of the issues so effectively I think it's one of these things where we've just got to accept some of the blame for that and I think that's one of the issues that we've got is we have to accept the blame for that and I guess our politicians do anyway so let's have a look at this because it's quite an interesting look at.

What the implications are for us not living in China but also as property investors and the things I think we need to look at and consider so yeah so let's have a look at that so first thing I want to explain is my framework so I've been talking about this framework for a while I've always talked about there's a medical emergency which is the virus if you like and then there's the human impact of it which obviously is the deaths and you know that people you know and you all that's for stuff then there's the economy so the medical side we've seen to getting a better understanding of it and I'm not saying we've got the understanding but what I am saying is that we can see that if we lock down the economy social distance do all these sort of things we do come over that bell curve and if you haven't done understand the bell curve go back to I think about three weeks ago on my site and there's a really good explanation with a bell curve it's one of the first ones I did on how we can actually see this and we're seeing that now where you know once we hit the peak and we start coming down we can then start talking about the economics.

The human tragedy it's always there because that's not going to be something that goes away all of a sudden and actually if anything the Medical has been and the economic has been crowding out the human tragedy but now we're starting to see the human tragedy stories come through on the news and that's our stuff which they've kind of been ignored for a while.

I think the interesting thing is for me you know losing this model forget about the
medical right now forget about the human let's talk economics because you know that is what we've been talking are talking about so V U L are they three letters but actually they mean a lot more than that so what is a V and we're talking about recession here how do we recover from a recession well there's really three and you know what up until now I've never really used the L which is effectively what it's saying is we drop and then we pick up you know straight away so you know a V-shape will come down and we'll head back up and a U-shape will head down or bounce along the bottom and then we'll come back up
okay an L-shape we hit the bottom and then we bounce along and it just sits there and there's no end in sight basically is what the general sort of thing and if you're talking layman's this is enough to really understand that.

So given that we've been talking about a V-shape recovery in China now the good thing about that if that is true then that could play out in other countries as they come back. In which case it's the economics of this is not gonna be as bad as we have sort of people are saying depression and you know high for state flash and all these other things perhaps aren't going to be correct so let's have a look at that because I'm not convinced that we're gonna see the V-shape recovering necessarily.

Okay so basically what we're looking at here all right so China's V-shape recovery and look if we look at the Chinese manufacturing Purchasing Managers Index now this is a worldwide thing if you have 50 50 is neither growth nor contraction anything below 50
is contraction you can see it went down to 35.7 and you know it was banging out about 50 percent which means there's no growth but now it's got up to 52 which has actually had some growth for one month, okay so it dropped and it basically has come back up because the demand and you know we had there are no bits on the demand but the interesting thing with this that's where we're getting the V-shape recovery from for last week but they've announced 6.8 percent extraction year one a Q1 compared to last year now retail figures are down 21.5 and there are other data to that is suitably concerning okay now this is the first time that China has actually had any fall back since was a Mao Tse Tung left in effective like he was 76 when he left and the modernization of China started in erst if you like they've been growing ever since and in fact even most pundits were talking about the fact that China for a recession for them would be five percent growth okay not a two- quarters you know a recession for them is not growth but it would be actually turn out of it and actually it's dropped so it's concerning from that perspective and you know the reality is many businesses are not opening up now what they have done and they seem to be saying they've done successfully is kept people employed so people haven't been made unemployment but I feel too it's a very different economy over there then say the US or the UK or Australia where you know businesses will make their people redundant at the drop of a hat you know because of different society it's not a you know democratic so capitalist you know society so it's not as prevalent we can't really compare apples for apples in the same way as we might have been able to you know if it was say the US and UK or you know some other Western eyes economy so we've got to consider that.

I just want to show you this too so this is the IMF economic growth forecast now I don't like to get IMF and I'll tell you why unlike them is because every time for the last fifteen years that I've looked at their predictions, they're always wrong you know they'd never turn out and they always you know it's almost as if they always go for the negative but as you can see what they're predicting is everyone pretty much everyone's down China, India not but everyone else is 5, 7, 6 s % drops contractions and then the 2021 predictions are all increasing China 9.2 which is a big bounce back for them yeah I mean you think they're running it sort of 6 percent and you know arguably some of their figures you know may not be correct in there you know politicized and all that stuff but most economies bouncing back you know which is an interesting thing are they gonna be right I don't know.

I'll explain why I don't know I'll explain my concerns and it's the sting in the tail that I'm this is why problem is if trying to jobs production because let's face it John has open back up now so they can start producing stuff but that production why produce stuff if the demand is not there and so this is the issue and I think exports are going to be hit in the second third quarters and that's we will see because there's not the global demand in particular in the US you know so I think rather than having a V-shape recession we're potentially gonna have a U or an L im not a big fan of the L I think it's more likely to be you one I'm not you know becoming more and more convinced that it's not gonna be a v-shape or covering everyone's just going to bounce back that it is gonna be this year and next year it'll be quite slow because we're not going to solve the medical or the virus side of it I think that's the real issue and look for me realistically the biggest determination is unemployment.

This is the issue for me I think unemployment I think countries that kept people employed are gonna be more likely to do a V-shape recovery than countries that have let people off I mean the US 22 million people 18 percent unemployment that is massive and I think that is gonna hinder the V-shape recovery so I think you know looking at the US as much as everyone else says but it's the US their biggest consumers look at 9/11 how quickly they come back look at the global financial crisis what happened there look at the stimulus packages they're putting in five trillion dollars you know months mostly the G20 countries you know all this sort of stuff and I think that really for me is going to be the determination. 

So what I would say if you're a property investor sitting there right now looking at all of this you know opinions and all that stuff is you've got to look at where you have property and you look at the businesses that are in that area are they going to recover you know for instance if you've got stuff in Derby you might get hold on a sec that's you know Derby egg airline industry home of Rolls-Royce you know awesome you know place it and it's amazing what they do there but how much new demand is there gonna be in the airline industry so they're making engines there you know so you know how much demand is there gonna be for nuclear submarines which I know they do some nuclear stuff there you know so so they're you know high tech engineering and that's what stuff maybe there will be but so you can look at that go hold on is is are people gonna be made redundant and if they're gonna be maybe done it and my place is being rented you know is my rent I mean cuz I think the average wage in Derby is second only to I think London I think don't hold me to that but it's something like I was something amazing when I read I was actually in Mipin a couple years ago and I met one of the I think was the mayor or something like that and he was explaining this to me and I was like blown away by the the numbers that he was giving me but it's because they've got so many you know nuclear engineers airline engineers and things like that bit but stuff like that so you need to look in your specific area.

Places like the major cities like London, Manchester, Birmingham that have a wide array they're probably going to perform better and they're going to recover quicker whereas if you're out in their cities you know adding the sub sorry suburbs and that you may find that you struggle I mean I'm hearing a lot about HMO guys you know no we'll be fine because we're at the lower end of the market, yeah but a lot of the HMO guys are at the lowering market I can find but a lot of the HMOs are at the higher end of the market you know and providing you know a really good quality product so you know are people gonna do that or are they going to go to the lower end you've got to look at your own instance of your own circumstances you know and where your properties are and what's likely to be affected I'll be doing that now rather than waiting until it eats you because if you need to put it on the market.

I mean I heard the other day one of the places we sold about 15 years ago in a one East London okay you know E1 and now there are twenty-one one-bedrooms that are available they used to get okay on a service department basis twenty-three hundred a month now those same places are going for seventeen hundred a month and there's 21 of them yeah at most times you put it on the market and it rents that rents yeah now try and get it rented you know so it may even be that that gets driven down further, so you look at those areas because the other thing is you know you're all these Airbnb that you know the service companies and we're seeing this now with some of our serviced apartments where they're going bust and they're handing those things back or they're either saying to us either we get rent free what we're going bust you know your choice give us give us rent free you know and they're trying to force that of course you know that's that can be decimating for the landlord so you know we're negotiating that sort of on one part, it's arrogance desperation you know on another part it's you know it's you know business transaction and we're go and maybe that these landlords have to accept less money and we're running numbers you know we're doing spreadsheets for these guys saying look this is if you wait around to Airbnb kicks back in this is what happens if you rest on a St basis you know at a reduced rent given that is the crisis right now so you've got to really personalize that so stuff.

Coming back to the main story you know is it the poster boy I don't think it's necessarily the poster boy I don't think I think they've done really really well in what they've but that doesn't mean that that's going to transfer to every country now because they've had that V-shape recovery in their purchasing managers index that everywhere else is going to so don't be deceived by that but get in now and solve whatever problems he can sort out you know whatever you can get your cash flows right you know if you need to get your payment holidays right you know if you need to negotiate with the tenants and get all that in place now so you can actually kick back and then make some really good decisions and make some really you know and make some decisions about the future of your business's future your portfolio and I think that's important all right guys have a great day. Remember to stay safe stay healthy and stay at home still for another three weeks which interestingly a couple of things I predicted that we'd be about that so yes the 7th of May I think it is that we're potentially back on and I think it is likely to come back we're likely to come back on the 7th but it'll be they're easing on you know hopefully we're responsible enough that we don't have to go back into that again.

Because I mean as much as it hasn't impacted me being a Singapore so able to go for the runs I never really did the shopping anyway but the bottom line is you know it's a pain too but not be able to go for beers with the boys although we are doing Friday lunches every week on virtual so that's quite good but anyway guys stay safe, stay healthy and stay home see you later bye

Brett Alegre-Wood
April 17, 2020

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