Betting on Morality

I have recently taken an interest in the Hong Kong protests and what they stand for.

I am most amazed by how little support the protests get in the west. Most of my friends are telling me: it’s because no one wants to disturb China as they do business there or want business there. I’m not sure if there’s any credibility to that, but if there is, I suppose that also explains why so many American companies are working alongside the Chinese Communist Party. Apple has been banning apps that Hong Kong protesters used to mobilize and hide from police. Michael Bloomberg, yes the owner of Bloomberg terminals, recently gave the Communist Party glowing reviews.

As the saying goes, “The capitalists will sell us the rope with which we will hang them.”

So how did we get here? I think it begins with the auto-pilot nature of some emerging market fund managers and what seems to be a mindless allocation of American investment Dollars to Mainland Chinese VIEs like Alibaba because they’re listed as “emerging market stocks.” It’s one painful development that should strike anyone on a deeper level. It definitely hits me. Look at any emerging market ETF or emerging market mutual fund’s top holdings and… surprise! You’re buying Alibaba bro. It’s generally the most widely held stock sometimes up to 5% of the ENTIRE fund. There is no consideration for American accounting standards, communism, free speech, oligarchs, or anything else core to the inner workings of America’s success all these years.

In my early days as an investor, I was taught markets don’t care about politics. The markets, being made of up of millions of buyers and sellers, will do what they have to do. Lately, I’ve been reevaluating that belief. Especially as I found myself watching video clips from China’s massive military parade — giant red flags, guns firing, huge portraits of leaders, and phrases like “strive for the motherland’s complete reunification” and missiles that can reach as far as the United States. I wish I was making this up:

All of this has me rethinking the way I plan to mix markets and politics going forward. In the past, I would focus on my own career path and my own investment theories. But I can’t do that now because what I see is directly in conflict with my investment goals going forward. So here is what I know and then what I plan to do:

1. When China tried to pass a law saying any Hong Kong citizen could be detained and moved into Mainland China for any reason, the people of Hong Kong stood up. Today, what you’re seeing or reading, is their young people fighting China’s Communist Party who is focused on forcing Hong Kong into their control.

2. Over one million Uighur Muslims who live in China have been arrested and put into government internment camps meant to “re-educate” them. There is very little religious freedom in China, if at all. And headlines like this particularly concerning:

3. Taiwan, a country of 25 million people, is fighting an information war each day with China. Most people in Taiwan say they are an independent country. China, however, says they rule them. Some think China will take the country by force in the next year or two if the Taiwan population does not come to accept their reality. On Wikipedia, Chinese Communist Party employees monitor the site 24/7 to try to edit in things like, “Taiwan is a province of China” when it is actually not.

4. Tibet, for years, has been battling China over independence. I remember while living in Cambridge, Massachusetts walking through Harvard Square to see Tibet protesters playing music and holding signs. For the longest time, I overlooked them. I had thoughts like, “I need to get to work” and “Can’t you do something better with your time?” Several years later and I finally get it. They have been at this for more than 10 years pouring their energy into consistency of protest. Today, the Dali Lama is still forbidden from ever returning to Tibet because the CCP is worried he is too influential.

5. I remember a time when the militarization of the South China Sea was all over the news. That was several years ago. The thing is, these things happen gradually until, suddenly, they are. China still says they own the entire South China Sea while everyone else like Vietnam and Malaysia say that’s not fair. The sea is home to several countries who also happen to live on it or share borders on it. As of this writing, the Chinese Communist Party is weaponizing the sea at an alarming rate.

6. The censorship in China is mind-boggling. A post like this would probably have me jailed and it would entirely be removed from any Internet property in the country. There is no free speech.

As the protests in Hong Kong continue, I will be watching Chinese stocks closely as well as the Southeast Asian countries that surround China. Several months ago I wrote about my thoughts on the Trade War and how I think it’s actually healthy for the world. It’s good to redistribute trade away from China and to other developing countries that need it more, are free, and most importantly, are actual *democracies* like Mexico, Vietnam, and others.

I have been scanning for the biggest and largest Chinese companies listed in the US and adding some to my short book. And I will short them through puts with a long expiration date. This will be my first time mixing politics and markets. I think people in the west are smart enough to see the tyranny taking place and will act. My money is betting on morality and I can’t imagine thinking about this in any other way right now. Let’s see what happens.

Side note: read this if you missed my post on Chinese VIEs.


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