Thoughts on Alibaba?

[101nick101]

What's the consensus on Alibaba stock following Jack Ma's hiatus and China's crackdown on tech monopolies, down from $300USD earlier this year to $155 (as of 27/08/) are we finally in buy territory or is this something you're steering clear of?

[SBQ]

I've been a long time BABA holder since IPO. I saw it rise all the way to $330 but made a mistake in adding more when it dropped to $280 (I caught a falling knife). I entirely existed my long position at $205.50. That was my sell point walking away with only a 25% return (after holding since IPO - it was a fair return on investment). As Buffet's #1 rule is to never lose money. However his side kick Charlie Munger took a stake in BABA at around $235 which encouraged me to hold on longer, but if it was not for this news, I would of exited my position well before, resulting in a higher return. I do believe Munger is wrong about China.

There's 2 sides to every coin and it's VERY hard for investors to move from 1 side to the other. I was a long time bull for BABA in believing that China would have an Amazon of their own. Sadly, the shorts won. Western institutional investors have existed out of the China market and what's left are the retailers and domestic funds in China making that gamble. When the big $ leaves, they're not going to simply come back to buying China stocks:

1) The message is clear that the CCP does not want any of their data to be exposed outside to the western world, and that having their companies listed via ADR on the US stock exchange posses a threat.

2) Recent meeting at the UN with Janet Allen about implementing a global corporate tax rate has set the tone for many of these large corporations. Alibaba has incorporated in a tax free haven and pays no corporate tax rates (much the same with Apple etc.). What will a corporate tax mean to Alibaba ? They may be moving back to China to be taxed within their own country.

3) The VIE structure that Alibaba operates under will be under scrutiny as the SEC gets closer to the compliance date where Chinese companies have to have "auditable books". Investors in the western world only buy BABA stock under ADR and entitles little rights for the shareholders. What the fundamentalists don't understand is all the accounting figures, the reporting that BABA has of their financial statements could be a hoax.

4) Above all, the biggest deterrent for western investment into Chinese stocks is the power of the CCP. The tone has been set out by Xi Ping Pong that these large Chinese companies must conform to a greater good for THEIR people in China. When they step out of line, or grow too large to influence people (politically) that would go against the China gov't, then the CCP will simply just impose drastic measures like fines... and more fines... which essentially is a robbing of shareholder profits. Take the case of DIDI where the company ignored the CCP's demand for not being listed on the US stock exchange. The punishment was simply a ban of their app by China regulators. Essentially, the China gov't has made these companies so risky that they're not viable investments when compared to the capitalistic sense that western nations operate on.

There is consensus that BABA will continue down to $100. If they get delisted on the NYSE, then watch out... because a delisting means every major fund will be rushing to get out.

[777]

Marlin (MLN) have 8% of their fund an Alibaba at July end. Will be interesting to see what shows at August end.

This is from their website

What does it do?
Alibaba is the largest e-commerce player in China with an overall online shopping market share of over 70%.

Why do we own it?
Alibaba is the online marketplace leader in China and is over five times larger than its nearest competitor. It has sustainable competitive advantages through its extensive network and scale. Alibaba is also a major beneficiary of strong online shopping growth in China due to continued urbanisation, increasing incomes and a poor physical retail infrastructure in many Chinese cities. Alibaba is expected to grow in excess of 25% per annum over the next few years.

[TeslaGod]

I've been a long time BABA holder since IPO. I saw it rise all the way to $330 but made a mistake in adding more when it dropped to $280 (I caught a falling knife). I entirely existed my long position at $205.50. That was my sell point walking away with only a 25% return (after holding since IPO - it was a fair return on investment). As Buffet's #1 rule is to never lose money. However his side kick Charlie Munger took a stake in BABA at around $235 which encouraged me to hold on longer, but if it was not for this news, I would of exited my position well before, resulting in a higher return. I do believe Munger is wrong about China.

There's 2 sides to every coin and it's VERY hard for investors to move from 1 side to the other. I was a long time bull for BABA in believing that China would have an Amazon of their own. Sadly, the shorts won. Western institutional investors have existed out of the China market and what's left are the retailers and domestic funds in China making that gamble. When the big $ leaves, they're not going to simply come back to buying China stocks:

1) The message is clear that the CCP does not want any of their data to be exposed outside to the western world, and that having their companies listed via ADR on the US stock exchange posses a threat.

2) Recent meeting at the UN with Janet Allen about implementing a global corporate tax rate has set the tone for many of these large corporations. Alibaba has incorporated in a tax free haven and pays no corporate tax rates (much the same with Apple etc.). What will a corporate tax mean to Alibaba ? They may be moving back to China to be taxed within their own country.

3) The VIE structure that Alibaba operates under will be under scrutiny as the SEC gets closer to the compliance date where Chinese companies have to have "auditable books". Investors in the western world only buy BABA stock under ADR and entitles little rights for the shareholders. What the fundamentalists don't understand is all the accounting figures, the reporting that BABA has of their financial statements could be a hoax.

4) Above all, the biggest deterrent for western investment into Chinese stocks is the power of the CCP. The tone has been set out by Xi Ping Pong that these large Chinese companies must conform to a greater good for THEIR people in China. When they step out of line, or grow too large to influence people (politically) that would go against the China gov't, then the CCP will simply just impose drastic measures like fines... and more fines... which essentially is a robbing of shareholder profits. Take the case of DIDI where the company ignored the CCP's demand for not being listed on the US stock exchange. The punishment was simply a ban of their app by China regulators. Essentially, the China gov't has made these companies so risky that they're not viable investments when compared to the capitalistic sense that western nations operate on.

There is consensus that BABA will continue down to $100. If they get delisted on the NYSE, then watch out... because a delisting means every major fund will be rushing to get out.

https://youtu.be/9wDpigy4eFE

[SBQ]

Marlin (MLN) have 8% of their fund an Alibaba at July end. Will be interesting to see what shows at August end.

This is from their website

What does it do?
Alibaba is the largest e-commerce player in China with an overall online shopping market share of over 70%.

Why do we own it?
Alibaba is the online marketplace leader in China and is over five times larger than its nearest competitor. It has sustainable competitive advantages through its extensive network and scale. Alibaba is also a major beneficiary of strong online shopping growth in China due to continued urbanisation, increasing incomes and a poor physical retail infrastructure in many Chinese cities. Alibaba is expected to grow in excess of 25% per annum over the next few years.

Excuse my offensive nature against fund managers. This is exactly the same rhetoric that these managed funds always say when they're on the long side of Alibaba. They make the same claims year after year how large the company is, what their profit growth is, and use fundamental figures that frankly speaking, could be lies for all we know. They make absolutely NO statement on how the company has been hit with a massive fine nor understand how the CCP can simply do it again to ensure there is no exceptional growth in Alibaba. Where else can a founder of a major corporation be simply 'silenced' (Jack Ma) by their gov't?

But don't take the view of these fund managers, let's talk about Alibaba's non-existent response of their PR / Investor's relation team? The CCP has scared the pants off on all these China tech companies that they can't even address the issue to their shareholders in any meaningful way. It's so clear the CCP has demonstrated and clearly defined, that when a company steps out of line, they get knocked down and shut-up.

Let me assure you, there will be no end to the powers of the CCP. No rock will be left unturned as they go from high tech, cyber security, social media sharing, cloud data, to regulations in online education, soon they will go after food, entertainment, automotive, the sky's the limit. All while if investors believe that they're going to get a decent return on their investment in China. Keep this in mind... if a China company is listed in the US exchange, the SEC at a stroke of using a pen can delist them off the exchange.

As Warren Buffet said, "Never bet against America"

[GTM 3442]

There are a whole bunch of funds/ETFs out there classifying themselves as "Asia excl Japan". How long before we start to see the classification "Asia excl China"?

Personally, north/east Asia looks like becoming too politically risky for my taste - starting to wonder about moving south - Indonesia/Malaysia/Singapore/Thailand/Vietnam as starters. . .

[Popeye]

Some good comments on this. In terms of the business, it is clear that Ali Baba is a great business, with an exceptional growth record. The prevailing economic winds are generally very positive. SBQ has convincingly pointed out the political risks AB faces, risks that apply to all Chinese businesses to a lesser or greater extent. Basically things work differently over there. When the CCP decides to take action, it is final and there is no right of redress. The CCP want businesses to toe the line, but also to continue to be successful domestically and globally.

I believe the CCP want economic prosperity for their country, and to be a worldwide economic powerhouse. And they have decided they need a strong regulatory and consumer protection environment as part of this. The economic success they have achieved the last 30 years in particular is presumably why their average citizen is happy to leave politics to the politicians and get on with getting ahead in life. The CCP are also very sensitive to anything that might turn the people against them or foment some sort of mass movement. So some of their recent CCP decisions need to be looked at in context.

I have no idea if China is a future investment basket case, but the sentiment seems a little bit overblown at present. Every piece of news seems to result in a mini panic, so skittishness is high. The big funds may well cash up and exit China, but for how long? As soon as they think there is an opportunity they will be right back in. It makes no sense to me that in the long term China will become or become and continue to be completely uninvestable in such an interconnected world economy unless the CCP started acting completely irrationally. Unless the CCP saw economic isolation as a necessary and acceptable cost of maintaining their position of power I just dont see that as the likely outcome.

A bit of a ramble, but all-in-all I would say that over a 3-5 years horizon Ali Baba looks like it will be a much larger and profitable business, even if they are taxed a bit more. Chances are they will still be open to investment from offshore. But dont bet the bank on it, the risk is undeniable.

[TeslaGod]

China politics and Washington talks of delisting Chinese companies, the best way to make money out of BABA is shorting it..I have done quite well in that position.(closed)

It felt quite good when I found out I was profiteering of SBQ losses.

[SBQ]

Some good comments on this. In terms of the business, it is clear that Ali Baba is a great business, with an exceptional growth record. The prevailing economic winds are generally very positive. SBQ has convincingly pointed out the political risks AB faces, risks that apply to all Chinese businesses to a lesser or greater extent. Basically things work differently over there. When the CCP decides to take action, it is final and there is no right of redress. The CCP want businesses to toe the line, but also to continue to be successful domestically and globally.

I believe the CCP want economic prosperity for their country, and to be a worldwide economic powerhouse. And they have decided they need a strong regulatory and consumer protection environment as part of this. The economic success they have achieved the last 30 years in particular is presumably why their average citizen is happy to leave politics to the politicians and get on with getting ahead in life. The CCP are also very sensitive to anything that might turn the people against them or foment some sort of mass movement. So some of their recent CCP decisions need to be looked at in context.

I have no idea if China is a future investment basket case, but the sentiment seems a little bit overblown at present. Every piece of news seems to result in a mini panic, so skittishness is high. The big funds may well cash up and exit China, but for how long? As soon as they think there is an opportunity they will be right back in. It makes no sense to me that in the long term China will become or become and continue to be completely uninvestable in such an interconnected world economy unless the CCP started acting completely irrationally. Unless the CCP saw economic isolation as a necessary and acceptable cost of maintaining their position of power I just dont see that as the likely outcome.

A bit of a ramble, but all-in-all I would say that over a 3-5 years horizon Ali Baba looks like it will be a much larger and profitable business, even if they are taxed a bit more. Chances are they will still be open to investment from offshore. But dont bet the bank on it, the risk is undeniable.

When I held BABA all the way to $320, there was absolutely ZERO news about China's gov't imposing controls. At that time, the sentiment was the spin off Ant Financial was the big thing reflecting BABA's high stock price. There was no knowing from that moment in time, if the CCP would step in. Hindsight I accepted the issued fine, and held long on the stock, thinking that it was a one off kind of deal. Boy was I wrong and now the CCP wants this "common prosperity" which is straight out of Communism books.

What the CCP wants in China is exactly that "economic isolation". You know they get upset when China can't buy up resources around the world, buy houses in western nations, yet no one outside of China can own property in China. What kind of deal is this? I'll tell you. It's all part of China's economic plan to promote their dominance around the world, while promoting isolation in their largest companies. They didn't want DIDI or the some 100+ Chinese corporate companies on the US stock exchange. They want to claw them back into China and the wealth of this will be retained within the China gov't. Just read the recent news and the trends where they've taken a major stake in Ant Financial. What does this spell out? Chinese gov't owning stake in Ant Financial??? This means the new company will not be listed in the US exchanges as political stakes in companies are not allowed. If BABA is tied to this, well i'm afraid it will be delisting time. Sometimes the writing is so clear that people don't believe it. So the media has to exaggerate China news a bit just so people look a little closer.

Look back in recent history, I recall when the Shanghai stock exchange crashed about 10 years ago were the gov't had to step in and bail out. If I recall correctly, this was very significant as the fault was investors were gambling in the same way we see the Meme stock gambling. So their response was to in CCP fashion, impose more regulations. Regulations like stopping families from letting their child spend too much time on the computer.

When Trump was elected and caused friction with China by implementing trade tariffs, people had the same view back then as today with BABA. Yah China has the largest middle class, China is going to be #1 in this and that. You know, they're a major economic powerhouse. Well just like back then, China's economy depends on export. When an exporting nation is dependent, who are the ones buying their products? It's rich nations like the US. Hence as Jim Cramer once said about this issue "who will win, China or the US?", he simply said, "the US because we have the wallet". He's right because like a retail shop owner, the person that has the wallet 'commands where they can spend it'. Western nations can easily pull their manufacturing out of China (well they're already doing so now). The sad thing is when China gets desperate, they will resort to stealing or theft of IP. Look how many times they've been hitting NASA or the US military, hacking into their computers.

[GTM 3442]

Getting a bit risky. . . getting more complex too

https://www.scmp.com/economy/china-economy/article/3147366/china-set-countrys-third-stock-exchange-beijing-xi-jinping?module=lead_hero_story&pgtype=homepage

[Popeye]

When I held BABA all the way to $320, there was absolutely ZERO news about China's gov't imposing controls. At that time, the sentiment was the spin off Ant Financial was the big thing reflecting BABA's high stock price. There was no knowing from that moment in time, if the CCP would step in. Hindsight I accepted the issued fine, and held long on the stock, thinking that it was a one off kind of deal. Boy was I wrong and now the CCP wants this "common prosperity" which is straight out of Communism books.

What the CCP wants in China is exactly that "economic isolation". You know they get upset when China can't buy up resources around the world, buy houses in western nations, yet no one outside of China can own property in China. What kind of deal is this? I'll tell you. It's all part of China's economic plan to promote their dominance around the world, while promoting isolation in their largest companies. They didn't want DIDI or the some 100+ Chinese corporate companies on the US stock exchange. They want to claw them back into China and the wealth of this will be retained within the China gov't. Just read the recent news and the trends where they've taken a major stake in Ant Financial. What does this spell out? Chinese gov't owning stake in Ant Financial??? This means the new company will not be listed in the US exchanges as political stakes in companies are not allowed. If BABA is tied to this, well i'm afraid it will be delisting time. Sometimes the writing is so clear that people don't believe it. So the media has to exaggerate China news a bit just so people look a little closer.

Look back in recent history, I recall when the Shanghai stock exchange crashed about 10 years ago were the gov't had to step in and bail out. If I recall correctly, this was very significant as the fault was investors were gambling in the same way we see the Meme stock gambling. So their response was to in CCP fashion, impose more regulations. Regulations like stopping families from letting their child spend too much time on the computer.

When Trump was elected and caused friction with China by implementing trade tariffs, people had the same view back then as today with BABA. Yah China has the largest middle class, China is going to be #1 in this and that. You know, they're a major economic powerhouse. Well just like back then, China's economy depends on export. When an exporting nation is dependent, who are the ones buying their products? It's rich nations like the US. Hence as Jim Cramer once said about this issue "who will win, China or the US?", he simply said, "the US because we have the wallet". He's right because like a retail shop owner, the person that has the wallet 'commands where they can spend it'. Western nations can easily pull their manufacturing out of China (well they're already doing so now). The sad thing is when China gets desperate, they will resort to stealing or theft of IP. Look how many times they've been hitting NASA or the US military, hacking into their computers.

Lots of good food for thought there. You may be right. I still think the concerns are a bit overblown or will be resolved by the weight of economic necessity, but am happy to admit I could be wrong. Time will tell. Like I said, the risk is there, dont bet the bank on this one or China stocks generally, that's for sure!

[SBQ]

Getting a bit risky. . . getting more complex too

https://www.scmp.com/economy/china-economy/article/3147366/china-set-countrys-third-stock-exchange-beijing-xi-jinping?module=lead_hero_story&pgtype=homepage

I normally take news from the South China Morning Post with a grain of salt. Their narrative is pro-China. As for Xi wanting a stock exchange in Beijing, well you have to also question who are the buyers? The key reason for Chinese companies like DIDI or BABA, choosing to list in the NYSE or Nasdaq is for global presence (large exposure of buyers) . Investment in China is limited (that is international investors getting funds OUT of China is limited; yes easy to send $ in) - so this move by Xi is to only self serve the domestic market.

[101nick101]

I've sold out of my position and replaced what I had catching the Lucid Motors dip king with some Disney. Makes me wonder what will happen with Nio in the future.

[TeslaGod]

I've sold out of my position and replaced what I had catching the Lucid Motors dip king with some Disney. Makes me wonder what will happen with Nio in the future.

I dumped Nio at 50 bought more TSLA

[herbert240]

Craigs are advising clients to sell. But I wonder if SP is on the verge of recovering? Are there any BABA holders out there with an opinion?

[Swala]

I have been a holder for about 18 months and am down 48%. Just doubled down yesterday in fact. I maybe crazy but this is an excellent company in my opinion. I am looking for price to double from here within the next five years.

[SBQ]

Getting a bit risky. . . getting more complex too

https://www.scmp.com/economy/china-economy/article/3147366/china-set-countrys-third-stock-exchange-beijing-xi-jinping?module=lead_hero_story&pgtype=homepage

Personally, I only take SCMP reporting with a grain of salt. Xi has talked about another stock exchange in China, perhaps a Nasdaq of China. Main problem... China has currency controls and with their RMB pegged to the USD, it would have limited interest on a global scale. That is direct investment into China by various managed funds around the world would never be a consideration. Therefore this new stock exchange would only be a domestic stock exchange - much in the same manner as the small stock exchanges we see in small developing nations.

China's situation is not risky and not complex. Not in terms of a Beijing stock exchange. Just like the Evergrand real estate fiasco, the risk exposure is mainly domestic. No reputable fund would ever dip their toes in those markets.

As for Alibaba, it's stock price traded below $130 today. If this is not proof that people are not interested in investing in Chinese companies, then I don't know what it. Long bag holders are asking "when" will it rebound. Well as i've implied before, capital flows of money go where there's the least risk for the level of return.

[herbert240]

I try not to interfere but my wife has blind faith in her Craigs adviser. However he seems to be so out of of step with his colleagues who almost unanimously recommend BABA as an "add"!

[GTM 3442]

I want to slap some money into Asia, but not China. It's easy to find an "Asia excl Japan" fund, but d*mn difficult to find an "Asia excl China" fund.

[SBQ]

I try not to interfere but my wife has blind faith in her Craigs adviser. However he seems to be so out of of step with his colleagues who almost unanimously recommend BABA as an "add"!

The NZ investment industry is a big con despite gov't FMA regulations trying to clean things up. A real shame as the NZ financial advisor is worse than most advisors abroad. They comment nothing on taxation but would gladly charge you for that information by contracting out to a tax accountant. How dare I say this is BS. Kiwi Saver funds need to be fully transparent on the entire taxation of their portfolios, but they are not.

So this is no surprise they will have their biased view on picking stocks like Alibaba. Even great investors like Charlie Munger can have it wrong. BABA is around $122 today and it seems every time we make a post here, it's stock price is lower.

@ GMT: be careful with that move. The capital flows of investment have been moving out of China for a very long time. Even in surrounding Asian markets pose a different level of risk. Will capital flows reverse? I don't know, not with the geopolitical issues at hand ; China vs The World.

[Beagle]

Some good posts in here. I don't trust the Chinese and I believe the geopolitical tensions over things like IP theft and Taiwan (just two examples) will get worse over time. For me, if you have no trust in their reporting and auditing systems and no trust in the CCP, one is best to stay out.

I think Marlin have this and Tencent wrong.

[NMHB]

Some good posts in here. I don't trust the Chinese and I believe the geopolitical tensions over things like IP theft and Taiwan (just two examples) will get worse over time. For me, if you have no trust in their reporting and auditing systems and no trust in the CCP, one is best to stay out.

I think Marlin have this and Tencent wrong.


Couldn't agree more

[SBQ]

Still lots of pension funds and hedge funds exiting BABA, putting lots of pressure on the stock price. Last week there was Softback registering a large portion of their BABA holdings into ADR. This is the process where the shares can be sold on the market at any moment. They've played it down but who knows - it seems to be a bearish move over the long term.

Meanwhile, i've been very successful selling weekly put options on BABA.