James Alexander Booth
James Alexander Booth
United Kingdom
5mo
Hello to Copiers and Followers, One of the portfolio's worst-performing holdings has been Meituan (3690.HK), China's dominant food delivery platform, which also offers hotel bookings, travel services, and a range of local lifestyle offerings—essentially combining elements of Just Eat and Booking.com. The sharp decline stems from an intense price war in the food delivery and instant commerce sector, reminiscent of a brutal "Hunger Games"-style showdown among Meituan, Alibaba's Ele.me, JD.com, and others. This cutthroat dynamic has driven massive subsidies, slashed margins, and widespread losses across the industry. Chinese netizens aptly describe this phenomenon as "involution" (or nèijuǎn in Mandarin)—a term that has evolved from sociology into everyday language to capture frantic, self-destructive competition. Everyone races harder, spends more, and competes more fiercely, yet no one truly advances; the system simply grinds down. Picture ten delivery riders slashing prices for the same order: margins evaporate, riders burn out, customers enjoy temporarily cheap food but receive declining service quality. Similar patterns appear in education (endless gaokao cramming), tech layoffs, real estate bubbles, and even dating apps where intensified swiping leads to more ghosting. Involution represents the dark underside of China's hustle culture—outward progress masks a wheel-spinning reality. The positive outcome from these brutal prices wars is super focused efficient innovative business's that thrive as they expand globally, as Meituan is currently doing. Meituan's underlying business remains world-class in scale, operational efficiency, and market position. The encouraging news is that such destructive price wars have occurred before in various Chinese sectors and, like all unsustainable trends, they eventually resolve. Regulators have already intervened: in early 2026, the State Administration for Market Regulation launched probes into excessive subsidies and "involution-style" competition in food delivery, summoning platforms and issuing guidelines to promote rational, fair practices. Recent signs indicate the war is cooling—some chains are raising prices and scaling back discounts—though Meituan warned of a significant net loss (up to ~RMB 24.3 billion / US$3.5 billion) for 2025, with losses likely persisting into at least Q1 2026 due to ongoing competition. When the price war ends I see very large upside to the stock. Weakness in Meituan combined with a broader stock market correction has contributed to the portfolio's recent dip. Such pullbacks are typical in bull markets, which advance in waves: strong uptrends are routinely interrupted by sharp, often sentiment-driven corrections. After the next leg higher I am considering reducing the weighting to Chinese stocks by approximately 30%, as I'm seeing very good opportunities developing in other sectors. This will help reduce risk and further enhance long term returns. I remain very bullish on a resumption of the broader uptrend and believe we are nearing the end of this particular dip, with investor sentiment now very depressed, setting the stage for another meaningful leg higher. Regards, Jim
Not investment advice. The author may have financial interests in the mentioned instruments.
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