Alibaba handed huge fine - Views on Chinese investments?

Following the huge fine Alibaba have just been handed ($2.75bn) and the recent mysterious circumstances around Jack Ma’s whereabouts, it further highlights potential issues about investing in Chinese companies i.e. NIO, Alibaba, eHang, JD.com etc

What are people’s thoughts? Does this introduce the potential for an artificial ceiling to the growth potential of individual companies? Do you think it’s dependent on the sector? Will this recent ruling make you think twice about speculating on Chinese companies?

I’m a huge sinophile and I wouldn’t touch the majorty of Chinese stocks with a bargepole. Actually, I feel a little hypocritical saying that, as 4% of my portfolio is in TCOM which is the US-centred, international rebranding of ctrip which is basically the only travel app you need in China. Personally, I think they have to opportunity to go huge when their international arm gets better known (although it hasn’t made much impact in the first couple of years), but they make so much money in China that they’ll survive a weak launch anyway. Not only is the app really convenient, it’s often cheaper than any of the Western travel companies.

But Chinese companies in general are known for being very corrupt financially and an extremely volatile market. It’s really common for seemingly perfect companies led by very respected business leaders to suddenly crumble exposing hundreds of millions or billions of dollars of fraud. Definitely stay away from real estate or financial services. There’s a reason that the Chinese that are able to invest outside China do so.

The biggest players, JD, Alibaba, Baidu, Tencent, Netease are all pretty stable and have massive turnovers, but this Alibaba case shows that even they can suddenly have massive fines out of the blue, when they don’t really seem to have done anything wrong except getting too big, which this fine isn’t going to solve.

But honestly, pretty much anything in China operates differently to here, you definitely won’t understand the market, and you’ll find it next to impossible to find out useful things about Chinese companies unless you read/speak Chinese very well.

2 Likes

Read about Luckin Coffee.

It’s enough to put you off

2 Likes

$2B fine but up 6% pre-market lol

4 Likes

Being fined for monopolistic behaviour is extremely bullish, Alibaba can finally join the likes of FB, MSFT, GOOG, AAPL, AMZN

4 Likes

I’m long Alibaba and a few other Chinese tech stocks. But the risk is that regulation is arbitrary, there’s no legal process, things just happen.

https://www.ft.com/content/1fe0559f-de6d-490e-b312-abba0181da1f

Search for the story on Google to bypass the paywall.

I think Alibaba, Tencent and JD are probably good long term investments. I’ve used the Baillie Gifford China Growth Investment Trust (BGCG) to invest as they have a good track record with their other funds - hopefully they can avoid any really bad investments with their research.

I think investing in China might be best via a fund that will react to issues like this threads title. Unless you are watching the markets well you could lose a lot but I guess that is the same everywhere in reality. I just don’t feel super confident in my ability to spot a potential big loss in China.