KWEB ETF - The Ugly Stocks Nobody Wants Cares About!
Summary
Sven discusses his approach to investing in Chinese technology companies, particularly those found within the broader China tech web ETF. He notes that the top 10 positions, including companies like Tencent, Alibaba, JD.com, and Pinduoduo, are often 'fairly to relatively cheaply priced' and offer good exposure to the Chinese market. However, his video focuses on the remaining 50% of the ETF, which he largely views with caution. Sven is actively building a diversified portfolio, aiming for high long-term returns, and thus seeks 'great businesses' that can match these expectations.
His general thesis for smaller, niche Chinese businesses is that investors either need 'foot on the ground' knowledge to understand the local dynamics, competition, and management, or the stock must be 'absolutely ridiculously cheap'—specifically mentioning a P/E ratio of seven as his threshold for a pure value investment. Anything above this, without direct insight, is considered too risky or merely a 'bet,' which he personally avoids.
He reiterates that for general China exposure, investors should consider buying the 'top businesses' rather than the 'junk, small cap' companies, unless they meet his stringent 'ridiculously cheap' criteria. Sven has not yet made a final decision on the broader ETF but did recently purchase JD.com for his diversified educational portfolio.
Mentioned Stocks
Reasoning: Sven considers JD.com to be 'cheap,' especially when noting that JD Health's market cap contributes significantly to JD.com's overall valuation, indicating JD.com's own low price. He explicitly states that he personally bought JD.com a month ago for his diversified educational portfolio.
Reasoning: Sven views JD Health, despite its growth and profitability, as a 'bet' at a P/E ratio of 24. He suggests it's 'much better to just own it through jd.com' where its value is practically not even priced in, implying JD.com is a superior and cheaper way to gain exposure.
Reasoning: Sven considers TripAdvisor a platform with 'no moat,' slowly losing traction and vulnerable to disruption, especially from AI. Despite trading at 8 times cash flows, he does not see it as a 'great' investment, suggesting it's not a compelling buy.
Reasoning: Sven acknowledges Full Truck Alliance as an 'interesting platform' and a 'good business,' but notes that for such niche China businesses, one needs 'foot on the ground' knowledge. At a P/E ratio of 14, he states it's not 'absolutely ridiculously cheap' (his threshold is P/E 7 for a pure bet without direct insight), indicating it's too risky for a new investment.
Reasoning: Sven expresses high uncertainty about Bilibili's future, stating it's 'very hard to know where will this be 5 years from now.' Despite some growth and a shift to profitability, he views it as unpredictable.
Reasoning: Sven considers Kuaishou 'too much of a bet' for him due to accumulated losses (220 billion RMB), intense competition, and the risk of government intervention, despite its low P/E ratio of 10 and involvement in booming video/AI trends. He explicitly states he is 'not doing bets'.
Reasoning: Sven highlights the significant regulatory risk this company faced (75% of business destroyed by government prohibitions) and views its current pivot to AI education as 'too competitive, too crazy, another bet.' He is uncertain about its use of cash.
Reasoning: Sven expresses uncertainty about the long-term viability of online recruitment platforms in China, noting that 'exuberance and then it simply disappears.' He finds it 'very, very hard' to predict their future or management's actions.
Reasoning: Despite being profitable, dividend-paying, and having a low P/E of nine, Sven categorizes TME as an 'interesting bet' but explicitly states 'just not for me.' He questions its potential for explosive growth, making it an unsuitable investment for his strategy.
Reasoning: Sven describes Vipshop as a 'melting ice cube' because its growth is gone, and it's 'struggling with that profitability' due to 'extreme competition.' Despite returning money to shareholders, he concludes it's 'not for me' due to these fundamental issues.
Reasoning: Sven notes Alibaba Health operates in a 'very competitive environment' in China, similar to JD Health. This highly competitive landscape makes it an unattractive investment for him.
Reasoning: While acknowledging it as 'very interesting' with growth and dividends, Sven emphasizes the difficulty of investing in China 'without a foot on the ground,' making it too challenging for him to assess and invest in.
Reasoning: Sven briefly notes that Kingsoft is 'a little bit even declining,' which is a negative indicator for investment.
Reasoning: Sven points to its low growth rate of 5% and merely 'turning profitable a little bit,' which does not present a compelling investment case.
Reasoning: Despite a large cash position (more cash than market cap) and efforts in dividends and buybacks, Sven expresses significant uncertainty about 'how will they work with that cash' and finds it 'very, very hard to know what the management will do.'
Reasoning: Sven notes that China Literature is 'not growing a little bit' in a modern context where people spend more time on videos than reading, indicating a lack of growth potential.
Reasoning: Sven warns that NetEase's low P/E ratio of 8 is 'just from an accounting tax measure, not real profits,' suggesting the valuation is misleading and not based on fundamental business strength.
Reasoning: Sven describes Ping An Healthcare as a business 'getting clobbered' by severe regulatory changes reducing maximum interest rates for fintech credit. He foresees 'business destruction' and 'stagnation' as loans evaporate.
Reasoning: Sven points to declining revenue and a lack of incentive from management, who he believes prioritize their own interests ('reward themselves') over rewarding shareholders, making it an unattractive investment.
Reasoning: Sven explicitly questions how this company made it into the index, suggesting a lack of perceived value or understanding of its business, implying it's not a recommendable investment.
Reasoning: Despite a low P/E ratio of five and cash, Sven considers Weibo only 'relatively cheap' and not 'extremely cheap.' He states it would need to fall 'another 30%' to become interesting enough to compensate for the lack of 'hands-on, on the ground' knowledge required for such 'bets.'