BABA - Alibaba

[Viking]

Haha, I find comments like this naive, this is not rocky 5 or whatever, China is not some monolithic evil empire that their goal is to destroy and take over everything. Like everything else in life, the real world is very much different with lots of grey areas.

 

1. No rule of law - really, do they let people just run  around and do whatever they want?

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

3. No freedom of press - a bit extreme.

 

Life is not all black and white and the so call western system is not some ultimate goal that every society tries to achieve.

 

:)

 

 

 

 

I agree with the latter opinions. Investing in these big Chinese companies requires understanding what the CPC wants first and foremost. If you can't foresee and figure that out, I'd be very careful.

 

What does CPC want:

1.) no rule of law

2.) no respect for individual human rights

3.) no freedom of press

 

China is a military dictatorship, plain and simple. Its core values are polar opposite to Western democracies/Japan/South Korea.

 

China needed to develop quickly and relaxed a few constraints for a few decades. Stage 1 in their growth was building economic and political power. We are just starting to see stage 2: the pivot with China starting to exercise that power. Wait until their economy is twice the size it is now - is the world ready for China (and its value system) being the dominant economic and political power?

 

Let's forget fiction like Rocky 5 (a joke of a movie). Let's look at real life. So what happened in Wuhon did not happen? (if you want to understand China watching this documentary is 45 minutes well spent.)

 

Coronavirus: How the deadly epidemic sparked a global emergency | Four Corners

-

 

Overlay the reality in this video with my and your three points. Which better reflects what happened in Wuhon?

1. No rule of law - really, do they let people just run  around and do whatever they want?

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

3. No freedom of press - a bit extreme.

 

I respect China... a lot. And my eyes are wide open :-) If you want to understand a country watch what it does at stressful times (just like people); they offer great insights into ones true identity.

 

And for people to suggest the 'same sort of things' happens in the US is bizzarre. Completely different political system, economic system, value system and history.

[Spekulatius]

The US and China has very different perceptions on what is right or wrong. Just watch the Movies from each country - like in “Hero” the Hero takes on for the team & country even though it wasn’t fair.

 

The you have countless Us movies where a food looking blonde female teenager gets in trouble because of stupidity, then 10 special forces troops rush in to bail her hour; eight of them die, but two survive and rescue good looking girl with a few scratches and we call it a happy ending.

 

Ok, I am stereotyping here and I don’t like the chinese government interfering as they do,  it in case of BABA this risk is priced in. I still think we are looking at a double here by 2022 if things go well and not much worse than $150 if things go very wrong. I like those odds.

[Viking]

I agree with the latter opinions. Investing in these big Chinese companies requires understanding what the CPC wants first and foremost. If you can't foresee and figure that out, I'd be very careful.

 

What does CPC want:

1.) no rule of law

2.) no respect for individual human rights

3.) no freedom of press

 

China is a military dictatorship, plain and simple. Its core values are polar opposite to Western democracies/Japan/South Korea.

 

China needed to develop quickly and relaxed a few constraints for a few decades. Stage 1 in their growth was building economic and political power. We are just starting to see stage 2: the pivot with China starting to exercise that power. Wait until their economy is twice the size it is now - is the world ready for China (and its value system) being the dominant economic and political power?

This is true, but it is also true that the country has economically evolved  tremendously and the communist party isn’t really communist any more. In a way, the chinese capitalist system is the one of the most cutthroat capitalist system that has ever existed and  that’s how Alibaba evolved into the into a national champion that the CCP is unlikely to destroy. I agree there are risks in that the CCP regulated Alibaba and permanently impedes their profitability.

 

Then again, the same thing was said about Tencent back on 2018 when the CCP was restricting new game launches. The stock reacted pretty unfavorable but if you bought Tencent after it corrected, you made very very well.

 

BABA at current levels could be roughly a double in 2022 assuming this blows over and I think that makes the risk reward pretty favorable. I guess we will find out.

 

I agree that there is money to be made investing in China. However, political risk is a very different animal in China compared to the US or Europe. Druckenmiller said a couple of years ago that President Trump may be viewed historically as the most pro-China President of the next couple of decades (with future Presidents taking a more hawkish stance during their terms)... certainly not consensus thinking at the time but something to think about :-) 

[SoonParted]

 

1. No rule of law - really, do they let people just run  around and do whatever they want?

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

3. No freedom of press - a bit extreme.

 

hyten1, I think you misunderstand the concept of the rule of law.  It's primarily a restriction on what the *government* can do, not individual citizens.  With rule of law, a citizen or corporation has protections against government abuses or capriciousness.  They can't put you in jail without a jury trial.  They can't declare a company a monopoly and force it to break up without going through an extensive process strictly specified by written laws.

 

In China, by contrast, there are no checks and balances (e.g. the court system is not going to say no to the CCP) so the government can do whatever the bureaucrats and politicians feel like, if they feel threatened by Jack Ma or anyone else.  There's a severe lack of rule of law.  And that's what makes it dangerous for investors.

[hyten1]

haha, yes i know what rule of law means :)

 

at the end of the day politicians have an agenda (in a multi party system or not). even in a so call one party system there are different factions, ideas, interests, groups etc.  i think people forget even in a screw you, you cross the line  I am going to put you in your place world, logic still comes into play. For China/Xi or whoever to simply take down BABA for that reason is not only illogical its stupid.

 

you know its not impossible that maybe just maybe BABA did cross the line :) its definitely one possible aspect of this, I am not naive to think if this happen this is the only reason.

 

The senarior that I am most afraid of from an investors perspective is what bennycx mention, limiting BABA's profitability (in one business or many) as to not cripple BABA but make BABA or potentialy any China business into low return investments.

 

 

 

 

 

 

 

 

 

1. No rule of law - really, do they let people just run  around and do whatever they want?

2. No respect for individual human rights - individual human rights is not the only thing that is important, Not everything  is always about the individual.

3. No freedom of press - a bit extreme.

 

hyten1, I think you misunderstand the concept of the rule of law.  It's primarily a restriction on what the *government* can do, not individual citizens.  With rule of law, a citizen or corporation has protections against government abuses or capriciousness.  They can't put you in jail without a jury trial.  They can't declare a company a monopoly and force it to break up without going through an extensive process strictly specified by written laws.

 

In China, by contrast, there are no checks and balances (e.g. the court system is not going to say no to the CCP) so the government can do whatever the bureaucrats and politicians feel like, if they feel threatened by Jack Ma or anyone else.  There's a severe lack of rule of law.  And that's what makes it dangerous for investors.

[SharperDingaan]

Always keep in the back of your head that China is the PRC, and its mandarins. They are very shrewd, they play the long game, and in the west - you see/hear/participate only in what the party wants you to participate in - WHEN the party wishes you to. Just a different approach, but you have to recognize that you are playing against a crocodile - jaws snap quickly, and permanently. Ma grew too tall, and in China - tall poppies get cut down. The PRC sets the the 5-yr plan, everyone else follows it, and it is not a discussion.

 

Thing is, that without conflict, there can only be limited innovation. You have to steal other peoples innovation, and adapt it.

You still have to either import (energy, minerals, etc.) what you don't have, or develop alternatives.

All brains walk on two-feet, and they are continually subject to 'snatch and grab'.

Dictator rules still apply, time at the top is a limited term engagement.

Yin/Yang of 'wealth' versus 'freedom' remains alive & well.

 

The current premier is almost 8 years into his term. His remaining time is short, and not his own anymore.

Expect surprizes.

 

SD

 

 

 

 

[winjitsu]

Interesting call for Chinese members of the forum to add in, but to my limited knowledge, none of us have chimed in yet  ;)

 

I've avoided investing in Chinese stocks. Here are the reasons:

 

1) Questionable BVI ownership structure -- can you actually ever get anything as a holder of stock in an adverse scenario? See Sinoforest or Luckin Coffee

2) socialism with Chinese characteristics (which, btw, is the official moniker for the system) -- state will direct creditors to make concessions and avoid bankruptcy. During the market drop of '17, the state called all the financial firms to buy and shore up the market, even though IMO it was still wildly expensive. Large state owned banks routinely gobble up corrupt / bankrupt regional banks with questionable assets. All this means returns will be much lower than if the firm was run in the interest of shareholders.

3) Party officials being appointed to all the top companies. The era of wild-west, no rules capitalism is coming to an end (some of this is good -- fraud's been rampant, especially in the financial services).

 

In the long term, this makes the country less economically competitive. But in the short-medium term, BABA has way too much momentum to be stopped. If domestic (and internal party leadership) ownership of BABA is high, I don't see the country ruining the wealth of it's citizens, just tightening party control further. Follow the money :)

 

 

The current premier is almost 8 years into his term. His remaining time is short, and not his own anymore.

 

 

You may have missed the "corruption purges" and abolishment of term limits that have happened over the past 8 years. All hail the new emperor.

[SharperDingaan]

The thing with dictator rules, is that however you change the rules - the same iron laws apply.

One premier per generation, and everybody gets older at the same time. To stay longer you have to successfully resist all the younger generations pushing you upward, it can be done - but it is not sustainable. Even the very, very, adept Genghis Khan eventually fell to his rivals.

 

It's useful to look to Macau for guidance, with its similar status to Hong Kong. One country, three systems  ;)

Wise men don't kill the golden goose, they periodically purge those receiving the golden eggs.

 

SD

 

 

 

 

[cameronfen]

As a Chinese American I’ll add my 2 cents.  I have family in China and lived there on occasion but not for long periods of time.  So the corruption purge was clearly a way for Xi to consolidate power, no denying that, but it also worked fairly well in reducing corruption in the country.  I’m not sure in the last couple years or so, but it really removed much of the transactional corruption in my experience.  I agree with Spek and Gregmal who point out that living in China is not this distopian image that some people imagine. Even if it is China’s goal to become the worlds sole superpower, it’s not like the CCP is some all knowing and all calculating adversary and the Chinese people are just obedient sheeple.  I think the propaganda in the country has worked to some extent.  I also think people mistake natural national pride that the Chinese people have that benefits the CCP for sheepleness. If you get close to people from China you know the Chines people are aware but don’t often verbalize the lack of freedom (also a lot of Chinese have made a lot of money and being able to live well is more important to lots of people than free speech).  This is why the human rights violations in Xingjiang and Tibet are relatively well supported by the Chinese people. 

 

I also don’t think it makes sense to criticize the draconian COVID lockdowns in China.  China is basically the only large country that isn’t an island that basically has 0 cases at the moment.  I think this has solidified support for the CCP among Chinese because none of the western democracies came anywhere close to containing the virus this effectively.  Honestly, I would have preferred a month of draconian lockdown and then no virus for the foreseeable future (along with contact tracing and quarantine of outside arrivals) and normal life than what ever we have in Europe and the US but I get that that’s a personal preference thing.  That being said, the Chinese did have an advantage because they had many more flu pandemics recently so the Chinese people knew to mask up and how to act without waiting for directions and the govt knew policies that would work. 

[fareastwarriors]

Let's see what this "rectification" plan is like.

https://www.cnbc.com/2020/12/27/china-orders-ant-group-to-rectify-businesses.html

 

 

I hope this goes to sub200.

[bennycx]

Exactly what I expected. It does not sound good

[Madalin.C]

now, can we talk about alibaba an not geopolitical stuff?

[fareastwarriors]

now, can we talk about alibaba an not geopolitical stuff?

 

Feel free to start.

 

 

The company upped their buyback plans to $10 billion from $6.

[Gregmal]

BABA here is a buy. Hows that?

[adhital]

“ Alibaba’s Woes Deepen in China Over Ant Group. Why the Stock Is Starting to Look Oversold.”

 

https://www.barrons.com/articles/alibabas-woes-deepen-in-china-why-the-stock-is-starting-to-look-oversold-51609194413

 

“Alibaba Is Down 30% in 2 Months. Buy the Dip”

 

https://www.thestreet.com/investing/buy-the-dip-in-alibaba-after-2-month-slump-december-2020

 

 

[bennycx]

Would be interesting to see where Ant valuation is estimated at now with more and more Fintech going into scope of banking regulations globally. This would trigger US regulators to start regulating fintechs.

[fareastwarriors]

Ant Considers Holding Company With Regulation Similar to Bank, Sources Say

 

https://www.bloomberg.com/news/articles/2020-12-29/ant-considers-holding-company-with-regulation-similar-to-bank-sources-say?sref=Yg3sQEZ2&utm_campaign=socialflow-organic&utm_medium=social&utm_content=business&cmpid=socialflow-twitter-business&utm_source=twitter

[RadMan24]

BABA here is a buy. Hows that?

 

I generally agree with this sentiment. Tencent dealt with regulatory pressures that sent its stock down 30% from its highs, and it a took a year or two, but it has since rebounded (I'm talking gaming revenues, of which its stock price did ultimately reflect, in addition to other business advances).

 

Costco long heldback on investing in China due to corruption. Now they opened one store and plan to open another.

 

Alipay and BABA have their work cut out for them, but the regulatory fears have opened up a nice opportunity.

 

VIC and Barron's have had some writeup's on BABA in the last year or so that would give some general ideas on the thesis, for those intrigued by this development.

[Spekulatius]

Ant Considers Holding Company With Regulation Similar to Bank, Sources Say

 

https://www.bloomberg.com/news/articles/2020-12-29/ant-considers-holding-company-with-regulation-similar-to-bank-sources-say?sref=Yg3sQEZ2&utm_campaign=socialflow-organic&utm_medium=social&utm_content=business&cmpid=socialflow-twitter-business&utm_source=twitter

 

Let’s not forget that FB tried to issue their own cryptocurrency (Libra) and then pulled it because of regulatory backlash a short while ago. Ant is only 33% owned by Alibaba and a small part of Alibaba’s value.

 

Anyways, China and the US aren’t that different in terms of government intervention for big tech. Let’s also not forget TikTok.

[SharperDingaan]

The issue for many of the tech companies is that when they go into banking, insurance, currency issuance, pharma, etc. - they are no longer tech companies. If you want to do banking, insurance, etc. you are regulated - if you don't like it, either exit, or get on the same page - your choice. HOW you deliver the service doesn't matter, and obviously if you are based in Asia - blunter approaches can be applied. Not a bad thing.

 

Not what big tech wants to hear, but too bad.

 

SD

 

 

 

[Xerxes]

We should distinguish between Beijing wanting to clip Jack Ma's wings and those of Alibaba.

 

I am holding strong on this name since the IPO in 2014. Was stupid enough to sell a 15% sliver of the position in 2018 @ $200 USD, after being seduced by Masoyashi Son when he invested in GM Cruise. Perhaps i can buy back my lost-15% below $200 USD.

[Jurgis]

Assuming we can trust the reported numbers, the shares are rather cheap. Morningstar predicts 22% growth for coming 5 years. Even at lower growth, the shares are attractive.

OTOH, I would not dismiss the potential of antitrust penalties that could negatively affect the business and the share price. IMO it's a real risk, but it's to be seen how significant the penalties are.

I doubt that Ant Financial will be allowed to IPO soon, but that does not necessarily kill the bullish narrative for BABA.

 

For fun and posterity, I also made predictions on stock price ( https://finpredictions.com/questions/what-will-be-alibaba-stock-price-june-30th-2021/ ) and Ant IPO ( https://finpredictions.com/questions/will-ant-group-have-ipo-june-30th-2021/ ).

 

Disclosure: At this time I have a position in BABA.

[kh812000]

Good ole  CCP.  Now Jack Ma is missing.  Likely in a prison somewhere... Doesnt bode well to me for BABA/Ant/etc....

 

https://www.wionews.com/world/chinese-billionaire-jack-ma-goes-missing-after-controversial-speech-354337

 

[mattee2264]

Another plus is that Jack Ma's stake is under 5%. So decimating the share price isn't the most effective way to hurt him.  Especially as there would be collateral damage. Much neater to simply imprison him and confiscate all his assets including his remaining shares in Alibaba. Perhaps his leadership would be missed but with him out of the picture they'd be out of the firing line.

 

 

[clutch]

So, CPC intervening is equivalent to the US government trying to impose lockdowns or regulate the tech industry... As recent events show, that's very optimistic thinking. Imagine Zuckerberg "disappearing" because of some comments he made...