Chinese stocks such as Alibaba, JD etc got hit hard over the last weeks and I wanted to share some thoughts on it.
Lets start with the good things first:
I think we are all in agreement that these Companies are high quality and that China is a growing Market. There are numerous videos out there that discuss the company’s earnings, pe ratios etc. I will not get into these things in this blog post.
You are in good Company :
If you invest in Alibaba you are also in great Company. Some of the best Investors of all time are Invested in the Company.
Charlie Munger established a position in Alibaba earlier this year. Famous Value Investor Mohnish Pabrai followed a while later and now also Guy Spier invested in Alibaba. You are definitely in good Company when you invest in Alibaba.
These guys know a lot more about Investing than I do so I am sure they did their homework.
Here is the one big thing that concerns me with investing in Alibaba and other Chinese Stock though:
The Regulations of the Chinese Government and China’s goals. Yes thats the big Elephant in the room
I discussed this topic with a lot of Chinese Friends and they basically told me that China has some goals that go beyond having top Companies.
Basically the main goals are to remove Poverty, have people employed and so on. Those are all great goals and I hope they reach it. The problem though is that this could come at the expense of Profits for Companies.
I don’t want to sound like the ultimate Capitalist but if you Invest your Money then you want to make the most Money possible. Thats just the way it is. And to achieve that the Companies you invest in have to make a lot of Profit.
While Chinese Companies like Alibaba are immensely profitable I am worried that some of this Money gets “donated”.
You see my dilemma here? I think Alibaba is profitable and the company is amazing but as we saw recenly a lot of Chinese Companies are donating Money to causes in China. Tencent just donated 7.7 billion dollars to “common prosperity”
Pinduadua been donating money etc. You see the potential problem here? This is shareholder’s money. This comes out of Profit.
So once again I don’t want to sound like the mean Capitalist but this looks like it could hurt my returns.
What if an area would face high unemployment. Could it be that a Company would just hire 100,000 people to keep the Government happy? I think this is a possibility.
So basically Alibaba is an amazing Company but if you want to invest in this kind of Company keep in mind that there is a Government behind it that has their own goals. Alibaba’s goals have to be aligned with the Government’s goals.
This adds some kind of uncertainty Investors might not be comfortable with. Are you able to predict the Company AND the governments actions?
Are you able to predict the Company AND the governments actions? I am not sure that I am able to do that. Baba and other Chinese Stocks come with a lot of Political Risk
So thats it for today. Just a few thoughts on Alibaba. I hope you got some value out of my video
What do you think about this observation? Please let me know in the comments below.