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.
Asian stock ideas
Asian Century Stocks on SBS Transit
Value Pendulum says Li Lu acquired shares in Postal Savings Bank of China
Articles worth reading
Defense expert Elbridge Colby provides a few suggestions on how the United States can help Taiwan avert an invasion
The PLA is increasing wages by 40% in order to attract talent
Journalist Katsuji Nakazawa noted that Beijing has now omitted the words “peaceful unification” from its Taiwan policy
Ant Group’s valuation seen to drop almost 70% on the regulator’s crackdown, highlighting the need to understand political and regulatory risk when investing in Chinese tech stocks
China hand John Pomfret discusses the rise and fall of private enterprise in China, suggesting that party support for private companies is waning
Wall Street Journal makes the case that China’s 2020 recovery was unbalanced
Evergrande’s EV venture surged this week to a market cap of US$57 billion, despite not selling a single vehicle yet
Malaysia aims to vaccinate 80% of its population by March 2022
Thai cabinet approves to extend cut in land, building taxes in order to support the local property market
Alex Turnbull argues there is a trade-off between Chinese growth targets and cutting carbon emissions
Jonathan Tepper recommends the book The Last Kings of Shanghai about the taipans that controlled trade in the early days of the Republic of China
Podcasts and videos
The Economist: Vietnam’s Communist leaders meet
Bloomberg Odd Lots: “How TSMC came to dominate the world”
Barry Eichengreen doesn’t believe the RMB will become a world reserve currency
John Pomfret on Biden’s approach to China
Chart of the week – Global crude oil inventories are slowly being digested
How would you rate this week's newsletter? 🤔
Thanks for reading!
If you’re finding this newsletter valuable, consider sharing it with your friends.
Or subscribing if you aren’t already.