An Interesting China Contrarian Play
I am getting more interested in this "uninvestable" market
Uranium Mining all the way to Nuclear Power – Mike Alkin interview
Mike Alkin is the Chief Investment Officer and Founder of Sachem Cove Partners, a specialty Uranium fund based in New York. This is an extremely high-level discussion around everything Uranium, from the mining all the way to enrichment and power generation.
Mike holds a firm view that the world will be in a considerable Uranium structural supply deficit for many years to come.
Global mining investment too low to support energy transition, Rio Tinto chairman says
Low rates of investment in the global mining sector have put the global energy transition at risk, widening the supply gap in critical minerals like copper, Rio Tinto chairman Dominic Barton said on Monday.
“The gap is humungous, and I am actually very worried about whether we will be able to close (it),” Barton said via video link at the Ecosperity conference in Singapore.
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Barton said the world isn’t just facing a shortage of minerals, but also a shortage of the capital required to dig new mines, which take far longer to develop than before.
“The mining industry has reduced its investments significantly since the 2015-2016 period … We’re hundreds of billions of dollars below what we need.”
This is the basis for my resource super-cycle thesis. Yes, demand is growing, but underinvestment is causing supply to lag. Higher prices will cure this, but it will take years, which is the opportunity for us.
Offshore Namibia
Galp is a Portuguese oil company that operates offshore in Namibia. This is a huge oil discovery (potential 10 billion barrels in place) and furthers my thesis that offshore Namibia might be as big or bigger than offshore Guyana.
Why should you care? I am bullish on offshore drilling and services. Over the next few decades, this is where the world's oil will come from.
One of the AIA portfolio companies has properties in this same area of offshore Namibia. In fact, the portfolio company is partnering with French oil giant Total in the Venus well, which was the biggest offshore oil discovery in recent history.
Emerging Africa
I am bullish long-term on Africa—or, more accurately, certain countries in Africa. It is a continent that does not get much attention, but many countries there have the potential for above-average growth as we begin to see the emergence of a middle class and the consumption that goes along with that. A good article from a Substack I follow details the potential.
In the last issue, we featured ISS Futures Africa’s report on Upper Middle Class with a population of 78 million as of 2023. There’s also the Lower Middle Class counted at 769 million. These two groups combined are forecast to reach 1.2 billion by 2043.
This rapid growth is also expected to diminish extreme poverty in Africa.
Moreover, the growing middle class is a key driving force in African countries’ rising GDP:
Naturally, as people are lifted from poverty, they increase their purchasing power, and this is now also one of the main motivations for foreign investors to invest in Africa.
The question is how to take advantage of the opportunity.
I have a company in the portfolio that is a publicly traded private equity firm with a couple of decades of success. The company is partnered with Canadian insurance conglomerate Fairfax Financial. The partnership struggled because it was formed right before the pandemic hit. The management was also saddled with legacy poor investments made by the prior management, which they have slowly had to unwind.
With all of that baggage now dealt with, they can focus on new capital allocations and deal flow. The stock trades well below the book value, and they have been buying back shares. It has underperformed, but I think its potential is tremendous. It could be dead money for a period of time, but this is what I like: undiscovered and under-followed situations.
China: A Contrarian Play
Jason Hsu of Rayliant joins Forward Guidance to share his view on the particulars of the Chinese equity market. Hsu argues that the “brutal” bear market is close to over and makes the bull case for onshore Chinese stocks. Recorded on March 28, 2024.
As I mentioned before, I think China is bombed out and is looking increasingly interesting as a deep contrarian play. The question I have is how to play it. Buying big caps like Alibaba and Tencent does not really appeal to me.
I found this discussion interesting and am looking at the ETF mentioned in the podcast as a possible way to access Chinese companies that are not the name brand large caps.
I will be watching Secretary of State Blinken's visit to China to try and ascertain if the US is going to place sanctions on China. Not that I think US sanctions will do anything but it might cause another bout of selling and calls for the death of the Chinese equity market.
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That’s it for this week.
To your investing success,
John Polomny