MAXIN GLOBAL FUND - USD is a Long / Short Directional hedge Fund incorporated in Luxembourg. It started trading on February,22 2022 and replaces MAXIN ADVISORS' MODEL PORTFOLIO which has been trading since January 1st 2014. At MAXIN ADVISORS, we manage FULLY TRANSPARENTLY and publish the transactions on a DAILY basis and the details of the portfolio on a WEEKLY basis.
MAXIN GLOBAL FUND / MODEL PORTFOLIO
Gross Performance
– 2.29 % Last Week
– 5.37 % Month To Date
+ 45.52 % Year to Date
+ 772.02 % Since Inception Jan 1st 2014
+ 27.78 % CAGR Per Annum 8.8 Years
NAV 872.02
MAXIN GLOBAL FUND – USD
Net Performance
– 2.29 % Last Week
– 5.37 % Month to Date
+ 6.63 % Since Inception 22 Feb 22
+ 10.11% CAGR Per Annum 8 Months
Manager’s Comments
The third week of October was bound to be a low point for our management with the unfolding of China’s 20th Congress of the Communist Party and the building of our exposure to Chinese equities. Last week, the HESCI index lost another -1.99 % and the domestic CSI 300 Index losing -2.6 % as doom and gloom prevails.
This week was compounded by the trend ending liquidation in US bonds, the missing piece in our global roadmap of a significant turning point in October before a significant year end bear market rally. The TLT US Government bond ETF lost -5.47 % in the week and 10 year yields spiked to 4.32 % before selling down at 4.21 %, marking a significant reversal.
Both segments represent our largest exposure with 118 % exposure to Chinese equities and 35 % exposure to bonds.
Conversely, our long equity positioning in the US and Europe experienced strong rebounds and the stage is set for significant advances ahead.
With – 2.29 % decline last week our portfolio contained the damage with our US equities compensating the downdraft in bonds and the portfolio of Chinese equities trading in line with the local Indexes. We took advantage of the sharp falls to increase our exposure to both China and US Bonds at the bottom this week.
Turning Points
As were accurately predicted, equity markets bottomed on October 13 and we reversed our strategic short positions in US equities to go long to the tune of 22 % in the US and 13 % in Europe, keeping only two small short positions.
Our assessment that the failure of the indexes to break to the downside in an environment of extreme bearishness and speculative positioning to the downside was correct and the market consensus is still very bearish, paving the way for a strong rally in the next three months.
At the same time, the US dollar has been clearly peaking and the only piece missing in the global configuration was the bond component with US treasury yields breaking above the crucial 4 % level and accelerating upwards.
But the most striking feature last week was the positive performance of equities in an environment where bonds were collapsing, a sure sign that the next trend in global equities is up.
Last week’s, and particularly Thursday and Friday price actions in US Bonds has all the hallmarks of a major reversal and bottoming out of bonds form an extremely oversold and over-extended position.
Bottoming out processes are always complex and difficult to trade, but last week clearly smacked of large liquidation and short covering by hedge funds. There could be marginally additional downside but the probabilities are that we should see a strong rebound in bonds form the current levels.
The year-end rally in bonds and equities will be fuelled by the beginning of a change of perception in monetary policies that is already being expressed in the talks of the FED members.
After a last 75 basis points at the Fed’s next meeting on November 1st and 2nd, the pace of hiking should start to decrease as the Fed becomes more data dependent. The all-important US deflator and core deflator for September will be published on October 28 and, as our readers and the attendees to our Oct 20 Webinar know, we expect inflationary pressures to ease somewhat ahead as the fall in commodity prices and housing component start being reflected I. the headline figures. The core deflator is expected to ease from 0.6 % Month on month to 0.5 % and any positive surprise would send equities and bonds sharply higher.
Moreover, the technical picture of US technology stocks and small caps is becoming very positive as groups, although individual stocks will remain earnings dependent. For now, 70 % of the companies that have reported have delivered positive surprises, and even TESLA who disappointed considerably, rallied strongly on Friday. Apple and Microsoft are delivering BUY signals that cannot be ignored.
The birth of the New Chinese Empire
When it comes to China’s 20th Communist Party Congress, we had outlined three scenarios, one with a very low probability where Xi Jing Ping would step down under the pressure of his opponents factions, one where he would stay at the helm with a team of more liberal and economy-friendly team and one where he would assert his power on the Communist Party and China even more with a team of loyalists.
It is clearly the third scenario that played out with a twist that no one could have expected when, after the vote of the new standing committee and Politburo, HU Jin Tao, Xin Jig Ping’s predecessor and leader of the progressive faction was hauled out of the Congress.
This is a clear message to the delegates of the party and the rest of the world that there will no longer be opposing factions within the Chinese Communist Party.
The 20th Congress is te coronation of Xi Jing Ping as the New Emperor of the New Chinese Empire and you will find our in-depth analysis in an exhaustive analysis to be published today or tomorrow at the latest.
Does this mean that China is “Un – Investable” and that its equity markets are going to collapse and disappear ? far from it.
Our rationale for investing in China is precisely that whoever comes to power and under whatever form, in their pursuit of world economic dominance and ” Common Prosperity”, the New Chinese Empire needs economic growth, that economic growth, technological innovation and independence and shared prosperity all need functioning and vibrant capital markets, and that finally to achieve this goals, China will rely more and more on its domestic consumer market, their purchasing power, their confidence in functional retirement and medicare systems, and performing savings mechanisms based on the financial markets to replace real estate investments.
China does NOT need foreign investors to lift its equity markets, quite the contrary judging from the experience of the US listed Chinese stocks. But it needs performing markets for Chinese corporations to raise capital and for the Chinese savings to find their ways into financial products.
But more on that and the implications of the 20th Congress in our coming article.
For now, as was the case with the extreme bearishness in US equities at the end of September, the level of bearishness on China is at extremes never seen in the past and valuations are at extremes never seen in the past either…
The “bad” news is now out and the new Government is now in a position to roll-out its policies without the disturbance of the major political change that just happened in China.
Economic data that was supposed to be published last week will come out next week and should show that the economy has rebounded strongly in the third quarter despite the COVID Zero lockdowns.
And it will only take one statement by the Government to entice domestic investors to pile in again into equities and trigger a new upward momentum.
Managing Value and Volatility
Our readers and investors may rightly query our decision to stay invested in China over the summer in what proved to be a damaging 30 % decline, and yes we could have done better,
However, as our history shows we are DEEP VALUE INVESTORS. In normal times, we are extremely agile in managing our risk and volatility, but at times of extremes, when overvaluation or undervaluation are unsustainable, our strategy is to build our positions gradually and to wait out the volatility patients until the turning point.
Our readers will remember that our ONLY negative year in almost nine years of management was in the irrational exuberance of 2020 where the US Nasdaq shot up by +43 % on the back of the +35 % increase of 2019, without one correction, taking US equities to the extremes we know, to the devastating bear market of 2021 in growth stocks and the devastating bear market of 2022 in the main indexes.
2021 proved to be our best ever year with a + 96 % performance, and we are still up + 45 % this year despite the summer downdraft. There are ponts in over or under valuation that commands positioning and timing the end of irrational exuberance, up or down, is an impossible task.
When it comes to China today, with the largest corporations of the world trading at 2 to 3x earnings in what is going to become the largest economy of the world soon, in the world’s largest consumer market, with the largest pool of savings and is te world’s largest exporter and second largest importer, unless one assume that its market economy, consumer market and foreign trade flows will suddenly disappear, the case for investing in these corporations at those valuations is the most compelling than we have seen in decades of investing globally.
So, yes, we are experiencing volatility, but volatility is the hallmark of turning points as you have seen in the western markets over the past few weeks. But the reality is that we have used this volatility to realised substantial profits all along while accumulating cheap investments that will provide the profits of the future, while securing extremely high levels of dividend yields.
We could not recommend enough our prospective investors to take advantage of the current volatility to make their investments into our funds before the 25th of October, to fully benefit from what we see happening ahead.
During our WEBINAR last week we had two high interesting questions :
. The first one was about our high exposure to China with the attendee highlighting the accuracy of our timing in general and wondering whether we had any hunch vis a vis China that could blindside our judgement and timing.
Our answer was quite simple : we have nit hunch whatsoever vis a vis China, apart maybe a more extensive knowledge of the economy, the system and the individual corporations than many investors. We have started investing in China in 1994, have visited many times most of the companies we hold in our portfolio, have travelled there since 1989, seen the brith of the Shanghai stock exchange, managed Chinese funds, had a team and an office in China for many years and have gone through the volatility of this particular market over the past decades without any hunch.
In 2021, we are completely out of the Chinese tech bubble, avoided the real estate sector, made money consistently as we do in other markets, and actually shorted the Chinese mark massively in August 2007, leading our hedge fund to rank number one in the world that year.
The following chart shows how volatile the cycles of the Chinese equity markets have been since 2004 with in red, the evolution of China’s GDP. ( Remember Warren Buffett’s Market Cap / GDP valuation yardstick.)
What we see today is actually the reverse situation of the 2007 and 2015 excesses, in even more. With the sharp liquidation of March 2022, we thought that we had seen the bottom of the bear phase that had started in February 2021 and we made good money until June and took significant profits then. What we did nt expect was Nancy Pelosi’s astounding top to Taiwan and the fastest bout of liquidation over the summer from an already deeply oversold and overvalued basis-
Our readers will hopefully give us credit for also having highlighted the excesses of the US stock market in 2020 / 2021 and having befitted strongly from their reversion since. At the beginning of 2022, as we were shorting US equities and tech stocks most main houses were bullish on the market and they have become bearish only in the past few weeks ( See Goldman Sachs revising its year-end targets for the SP500 last month )
From 2016 to 2022, we were predicting that inflation would come back and avoided being invested in bonds altogether until recently. We have probably been one of the very few asset manager avoiding bonds altogether over the period and criticising Central Banks for their highly dangerous momentary policies.
So the answer is NO, we have no hunches vis a vis any market or asset class, but what maybe make us different from other strategists is that we have an important layer of structural, macro and geo-political analysis that allows us to go beyond the superficial analyses of the general press to assess the depth of the dynamics at play. It takes strong analyses to get to the point of criticising openly the chairman the FED and what we were saying then is what everybody is saying today.
The second highly interesting question was from an attendee who praised the convincing case we were making for a very long winter in US equities, and he asked us where we could go wrong.
This is a very legitimate question that we have on our minds every trading day of the year.
The answer to this question is that we are all about analysing dynamics, be they macro, political or sectorial, again think of monetary policies, Oil, Tesla or Bitcoins.
And is is the case with the laws of physics, the dynamics of economies, political systems, inflation or investors psychology are unquestionable, they unfold time after time in exactly the same patterns. So the answer to the question is that if one’s assessment of the dynamics at play is correct, then there is very little where we can go wrong in the dynamics themselves. Where we can go wrong is in the timing and pace of the unfolding oil the dynamics themselves, as was the case with the irrational exuberance in US stocks and cryptos in 2021 or today’s irrational fear about China.
The biggest political – and financial – risk for global invests today when it comes to China is actually to ignore or underestimate the dynamics at play in the world’s second largest economy of the world, and to be totally out of this market.
The New Chinese Empire could well surprise the world with its economic successes and it would not be the first successful empire if one judges from the development of the British Empire after the Napoleonic wars.
Empires are no necessarily bad for economies, in fact, they gain their might from their economic successes and nothing else !
Finally, we have received interesting technical analyses form Credit Suisse on the Chinese and Hong Kong markets, with a Cleary negative bias insisting on the fact that they were inscribed in well-established bear trends. We use a lot of technical analysis ourselves and every technical analysts wil tell you that a bear trend is bear then and a bull trend is a bull trend UNITLL it turns.
And in 40 years at managing money, we have never seen a technical analyst predicting accurately that the Nikkei would peaked at 39800 in December 1989, the Nasdaq 100 peak at 4857 in march 2000 or at 16700 in December 2021, and even less bottoming at 1018 on the 18th November 2008.
Turning points happen brutally as was the case with equities on October 13 without any warnings apart form sentiment. And when they reverse exaggerated trends, markets can rebound by 20 to 25 % in no time…
In the past week, we have been increasing and diversifying our exposure to Chinese equities, mainly in Hong Kong, taking our exposure to maximum and investing in consumers an infrastructure stocks. Anyone believing that XIAOMI, XINY SOLAR or ALI BABA are companies that will disappear in the new Chinese empire should probably do some due diligence.
We have taken trading profits in some US and European long positions, increased some others like the Russell 2000 or Solid Power and added to our bond TLT ETF and Chinese FT50 ETF on Friday.
ATOS of France was a great performer last week as were our gold and precious metals positions and our US SP and NDQ long future positions.
Our readers should consider increasing their weighting to China at this stage and MAXIN GLOBAL FUND is a great vehicle to do so.
Yes we have been experiencing volatility recently, but which asset class has not ?
Portfolio Details
Asset Allocation
Transaction List
Week Ending 22 Oct 2022
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