Brief China: Koolearn: Losses in Full View and more

In this briefing:

1. Koolearn: Losses in Full View
2. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
3. Koolearn: Marketing Expenses Have Taken Operating Profits Down the Drain
4. China’s FX Gaps Ahead of Lunar New Year
5. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019

1. Koolearn: Losses in Full View

When we previously argued that the Koolearn IPO was ‘hurtling towards losses’, its latest PHIP update provided little reprieve to our postulation.  Further analysis on the latest update can be found below the fold. 

2. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

• US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
• Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
• A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
  That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
• The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
• Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.

CNBC Interview of David Riedel on US-China Trade

3. Koolearn: Marketing Expenses Have Taken Operating Profits Down the Drain

• Koolearn updated its IPS prospectus and posted operating losses for 1H2019 (ended Nov. 2018).
• The company spent significantly on online promotion, but we believe that online promotion is not useful.
• We also believe online marketing expenditures are not a productive use of the Company’s cash, as Koolearn’s brand was already well known among consumers due to its parent company, New Oriental.

4. China’s FX Gaps Ahead of Lunar New Year

China has essentially shut down for Chinese New Year, but we want to take a look at FX markets and the relationship between the USD and RMB. Another reason to keep this at the forefront is that the trade talk deadline is on the other side of Spring Festival. We anticipate FX to be impacted by trade speculation ahead of the deadline.

5. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019

• Poland: Could be a beneficiary of Brexit if Poles return to boost domestic demand. Unemployment of 5.5% provides room for workers.
• Brazil: Congress returning to discuss market-friendly policies from Bolsonaro – Pensions are top of list for reform
• Malaysia: Extremely dependent on external trade Malaysia has done well recently but may face headwinds if global growth slows.