Asia links 28 Jan 2021: Alibaba, Biden, leisure travel

Insight #1 – Regardless of who controls Alibaba, it doesn’t quite pass the quality test

Jack Ma resurfaced in a video that looks surprisingly much like the forced TV confessions that we have seen so many times in the past. The recording is meant to quell worries about Jack Ma’s disappearance. Today, the PBOC confirmed that the Ant Group IPO could potentially go ahead in 2021 if certain issues are resolved. That said, after reading Aikya’s excellent write-up “Why we do not own shares in Alibaba”, I wonder why investors bother with Alibaba at all. Aikya argues that Alibaba has enjoyed implicit state support through its links with the Shanghai faction of the CCP. What does that imply, given that Xi Jinping does not consider himself to be part of the Shanghai faction? There has been self-dealing between the ListCo and Jack Ma entities in relation to AliPay, CITIC21CN, Wasu Media and Huayi Brothers. And the accounting is murky, with revaluation gains from subsidiary acquisitions. While the Taobao / Tmall franchise is strong, it is facing competition from JD and Pinduoduo. And China’s online GMV/retail at 25% is already very high. I sympathise with those who feel forced to own the stock to avoid a fund’s tracking error. But in any case, an underweight seems justified, given the many question marks around the company’s corporate governance.

Insight #2 – Biden will probably not come to the rescue of Taiwan

Joe Biden appears to be a friend of the People’s Republic. Australian analyst Gregory Copley said in an interview a while back that he thinks that Biden will not intervene in the event of an attack. While the new Biden administration in its official language has confirmed its commitment to defend the status quo in the Taiwan Strait, their actions tell the exact opposite. Biden has just banned linking COVID-19 with China, even though most experts agree it is highly unlikely the virus could have come from anywhere else but Wuhan. Biden rescinding the Trump executive order banning CCP ownership of the US power grid seems odd to me. What is the upside of having a strategic enemy control your power grid? And today, Biden started to roll back the restrictions on US investors investing in Chinese military-linked companies. Judging from his actions, it looks like Biden is a China friend. The biggest implication in my view, is that he would probably not intervene in any PLA attack of Taiwan. He would instead procrastinate and defer the decision to Congress in a conflict that could potentially be over in 20 days. That’s why I feel strongly about defense stocks, since they will rally in the event of an attack on Dongsha, Kinmen or even Taiwan itself.

Insight #3 – Leisure travel is likely to recover fast and Thailand is the prime beneficiary

With individuals around me here in Singapore starting to get vaccinated, I can’t help but becoming more positive on our recovery from COVID-19. I look forward to getting off this little island and get a change of scenery. Asia has been one of the hardest-hit regions in terms of travel. The pent-up demand must be incredible at this point. The first leg to recover will probably be leisure travel, as the below chart from Bernstein shows very clearly. What are the top destinations for leisure travel in Asia? Undoubtedly Thailand, where the economy has been hit hard by the absence of inbound tourists. A potential new US$10 tourism tax could be a threat but I still think the Thai economy will recover very fast once vaccines become widely distributed towards the end of 2021.


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Chart of the week – Global crude oil inventories are slowly being digested

Source: Kpler


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