China Nuclear Reactor Leak, Chinese Education Stocks

To the Point 19-06-21

China nuclear leak

A reported radioactive leak spooked the uranium market this week.

China claims the problem is common with no need for concern. Of course, the Chinese government has to say this. The CCP always sweeps problems under the carpet and does whatever it can to save face and maintain control over its populace.

With limited and untrustworthy reporting, we just have to wait and see how the reactor situation plays out. Since the issue doesn’t seem to be escalating, the CCP is probably telling the truth.  

Uranium stocks got dumped on the news… I pity those who panic sold.

Reminder: the central reason we invested in uranium miners is because ~30 million pounds of U3O8 was being eaten out of a surplus pool of 75 to 100 million pounds (2020 numbers).

The Taishan 1 nuclear reactor consumes ~880,000 pounds of the ~170 million needed by all reactors.

In other words, the Taishan 1 is barely relevant in the supply-demand discussion and has nothing to do with the central thesis.

I realize the fear is, “What if Taishan 1 blows up?”

In that case, things might actually get ugly. However, if you want to be anal, it’s not the nuclear reactor blowing up that’s the problem (for our stocks – disregard humanity for a moment). It’s how regulators and utilities will react to the nuclear reactor disaster.

Fukushima was certainly a disaster for humanity, but a few reactors going down would not have upset the supply-demand balance in 2011. It was the Japanese and Germans deciding to shut down all their reactors in an instant that destroyed the uranium market.

Likewise, Taishan 1 can shut down completely and barely affect our investments. But if the CCP decides to shut down all reactors in the wake of a crisis, that’s when I would sell everything.

The chances of that happening are near 0%.

The best course is to stay put or keep accumulating your favorite uranium positions.

Chinese private education stocks hammered

A while ago, I wrote about the ways China is moving backwards, particularly under Xi.

We get to see the consequences of the CCP’s heavier fist in Chinese private education stocks.

TAL Education Group chart - Yahoo Finance
TAL Education Group chart – Yahoo Finance
New Oriental Education and Technology Group chart - Yahoo Finance
New Oriental Education and Technology Group chart – Yahoo Finance

For a while, Chinese education stocks grew rapidly while taking advantage of the increasing number of people moving from farms to cities. The authoritative sentiment also wasn’t as strong prior to ~2017. While the stocks continued to climb until recently, you’d have done better selling around 2017 once the CCP’s grip really started to tighten.

For a country governed by dictators who need to control every aspect of their citizens’ lives, “private” education was destined to cause trouble. After all, the education system heavily influences someone’s outlook on life and what kind of person he will be.

Inevitably, once education systems outside the CCP’s grip get too large and influential, the CCP must step in to regulate.

The opportunity?

Whenever everyone zigs, it’s best to consider zagging.

It could be everyone is overreacting and these Chinese education stocks still have growth in them.

I tend to disagree, given how clearly the CCP is becoming more authoritative. My view is the CCP will do something to regulate private education. Their regulations may make private education completely null and void. Or they may regulate through heavier oversight, while still allowing private educators to make healthy profits.

Either way, it’s better to wait and see what happens and decide from there, in my opinion. These are growth stocks and won’t have the same “whip” like a cyclical stock if they turn around, so you won’t miss much by waiting.

The lesson

All Chinese businesses will be in the CCP’s crosshair.

The trick is to find businesses that won’t get shot. This is what I meant when I said I am cautiously bullish on China.

China still has all the great things a country has when it transitions from third world to first world plus a massive production base. You just have to avoid the obvious CCP targets or be able to get out once you notice the sentiment changing.

Politics is baked into the fundamentals of many businesses in China. Unfortunately, that’s increasingly the case in the West too.