BABA - Now may be the time

Chinese and U.S. regulators are progressing toward a cooperation plan on U.S.-listed Chinese stocks, state media said, citing a financial stability meeting Wednesday chaired by Vice Premier Liu He.

https://www.cnbc.com/2022/03/16/china-says-it-will-support-c…

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From the time I posted this, to now, BABA is up $10. WOW.

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Up 35% on the day so far. Remarkable!

I’m still deep in the red on my position, but this is a nice change of pace.

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I’m still deep in the red on my position

When a stock is moving not on “fundamentals” this is what happens. The catalyst is not company’s operating performance. That’s what I cautioned until things change you don’t want to get in because you don’t know where the bottom is.

I bought on news today, after I posted the message here. Some of which I am going to close tomorrow and half of which I will keep it as a long-term position.

I would say even if someone buys tomorrow, they will not only have a better entry price, they will be making decent money on their purchase.

20% in 3 days. The board discussed endlessly about BABA, how smart Munger, and his genius, etc. Yet the reaction to this post is not surprising.

This was a good call, Kingran. That was some important news you brought to the board, which news changed the psychology around the stock significantly.

It’ll be interesting to see if it sticks. There’s still a sh1t-ton of bad news around China at the moment, from the real estate crash to the Covid outbreak. And Alibaba itself suffers from stagnant earnings and drastically slowed revenue growth at the moment. However, removing most of the fear of further government crackdown and of delisting from US stock exchanges takes away two significant worries.

Alibaba is still a powerhouse of a company, both a cash cow and perfectly situated to grow longterm. I certainly like it at today’s price, though I don’t know what to expect for share price in the near term I like it as a long term investment.

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There’s still a ton of bad news around China at the moment, from the real estate crash to the Covid outbreak.

BABA is trading not on fundamentals. I have a core 3% position with a 50% loss. I added some trading position which I will close soon. I have not added anything during the decline on BABA or other Chinese name because I think regulatory structure makes it investible.

This news provided very little relief and given the sharp decline, I basically bought for the rebounding rally.

I am trying to understand the tax and other implications of buying on Hong Kong. But, so far, it seems as a shareholder your rights are not same as any American company. Without “property rights” what is the point of owning an asset?

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There is no capital gain tax in Hong Kong, there’s a 10% tax on dividends. You will have to pay capital gain tax in the US, I think.

As long as you are a US person, u need to pay for capital gain tax.
I bought the ADR.
The HK has a trading transaction tax, I think it’s 0.05%. It also has a purchase requirement of minimum 100 lot.
The ADR has a yearly management fee of 0.05%, and IMPO a very small risk of delisting risk. In case delisting does happen, it cost 0.05% to convert to HK shares.

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BABA is trading not on fundamentals.

I’m sure the thousands of people who buy and sell the stock every day have varying reasons for making their trades, from 100% fundamental to 100% technical/quant and every shade in between.

I have a core 3% position with a 50% loss. I added some trading position which I will close soon. I have not added anything during the decline on BABA or other Chinese name because I think regulatory structure makes it investible.

Do you mean un-investible? Not sure what you mean by that sentence as written.

This news provided very little relief and given the sharp decline, I basically bought for the rebounding rally.

I think it provided more than a little relief. So did the market given the astounding 37% gain the day the news broke, a gain in market cap of almost $80 billion! The news addressed two significant fears: that of further government regulation hurting the business, and that of delisting the American ADSs. Which fears have been driving a sizable amount of the negative sentiment and price decline over the last year and a half. While other fears remain, if Alibaba is left to go about their business and the shares continue to trade in the US, I think the chances are good for them and the stock doing well going forward. Sure the economic environment in China could slow growth, but that’s just normal business cycle stuff.

But, so far, it seems as a shareholder your rights are not same as any American company. Without “property rights” what is the point of owning an asset?

The VIE structure supposedly provides contract rights to a share of the value of the company. As mungofitch has repeatedly warned, those rights are not as strong as those we enjoy in the US, especially since in some ways they could be viewed as illegal in China, giving ownership of Chinese companies to foreigners. But, since he started sounding that alarm, after BABA became a hot topic here when Munger bought in for DJCO, there has been movement from the Chinese government to recognize the VIE structure for the first time, laying out requirements that companies will have to meet to list stocks using that structure. So, that fear has been addressed, somewhat.

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I will also add: I think Jack ma and Cai own the ADR

I’m an older guy and things that seem important to others don’t typical much register too high on my concern scale. Given I was in the insurance broker/agency business I bought a Chinese insurance brokerage stock and although its results tended to be scrambled eggs those results did tend to go up quite fast.

I rarely sell stocks but I sold the stock (just like I did Nio this week) and luckily did well. That stock however now is far below where I bought it and is to be delisted soon.

I’ve sold Nio and I’d bought and sold Alibaba too (some time ago). The fact that I am selling means less then normal about making or losing money in my case. Selling for me mostly means I just do NOT enjoy thinking about these investments, the suck energy rather than give me hope and positive feelings.

That’s my story, I simply don’t want to think about Alibaba outcomes or Alibaba issues. They never seem to be at all predictable so I really don’t want to have anything to do with them.

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Selling for me mostly means I just do NOT enjoy thinking about these investments, the suck energy rather than give me hope and positive feelings.

WOW. That’s deep. I never looked at my investments in this light. I know activities that is drains my energy, but not investments.

Thanks.

Actually kingran it isn’t deep at all. The amount of money I have had in the Chinese entities is meaningless as to the overall. It is just waking up to something like delisting is sort of something I’d rather not think about.

Not criticizing you, words are hard to understand in print form. Just a waste of my time to be in Chinese stocks.

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Re the ADR’s worth noting that the company are buying back a lot of shares atm and they are buying the ADR’s, significant?

The news addressed two significant fears: that of further government regulation hurting the business,
and that of delisting the American ADSs. Which fears have been driving a sizable amount of the negative sentiment and price decline over the last year and a half.

Though I don’t want to get into this never-ending argument, I think it’s possible for an announcement to “address” an issue without alleviating it.
The recent pronouncements are, in my opinion, an example of just that.
The risk of more future material or total value diversion has not fallen in any big way that I can see.

As for the delisting, not my primary worry, that would seem to be very much still in the cards: it would be essentially guaranteed if current US regulations were enforced.
There is no way Alibaba could create (nor probably pass) a US-approved audit.

Jim

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One more comment on making money from BABA:

For those interested in the dark side of the force, check out the payoff graph for a “call ratio backspread”.

You make a (usually very small) profit it the stock price falls, also capped.
You lose a little if the stock price is flattish or rises only modestly, the loss capped and known in advance.
You make an unbounded amount of profit if the stock price soars.

Heads I win, tails I don’t lose much.

Jim

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The news addressed two significant fears: that of further government regulation hurting the business,
and that of delisting the American ADSs. Which fears have been driving a sizable amount of the negative sentiment and price decline over the last year and a half.

Though I don’t want to get into this never-ending argument, I think it’s possible for an announcement to “address” an issue without alleviating it.
The recent pronouncements are, in my opinion, an example of just that.
The risk of more future material or total value diversion has not fallen in any big way that I can see.

Maybe not reducing the risk totally but I think it’s pretty significant, no? Based on some of the China analysis I follow, it sounds like Xi’s power (and CCP legitimacy) still depends on a prosperous economy. The CCP is pretty pragmatic, notwithstanding Xi’s recent social agenda, so my central expectation is that they do what is in their best interest, which is heavily tied to the economy. The recent change in government direction confirms that hypothesis.

Alibaba and the rest of the Chinese internet stocks are a big part of that so I think they will be mostly safe. Alibaba may have a leg up on the others because of their ability to affect the “real” economy through their cloud/digitization efforts, thousands of small businesses on their platform and supply chain capabilities.

Of course lots of tail risks, which I guess Jim and others are worried about. I’m relatively young and accumulating (and not yet rich) so I don’t mind some additional risk for bigger returns.

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Maybe not reducing the risk totally but I think it’s pretty significant, no? Based on some of the
China analysis I follow, it sounds like Xi’s power (and CCP legitimacy) still depends on a prosperous economy.

I don’t think that is a factor in their thinking on Alibaba.
Control and a calm populace matter, whatever it takes. If Alibaba doesn’t succeed, someone else will, or can be made to.
And if there were a contest between maintaining control with expedience and merely impoverishing shareholders, we know which would win.

To my eyes, the current announcement cycle was just to stop the current price drop, and probably has little meaning for any time frame longer than that.
And hey, it worked. Now it’s over. Back to wondering what will come next.

For the moment, Alibaba can be thought of a bit like Walls Fargo: actions have been taken to cap their size and stanch their hubris.
That may pass, or may not. Beats me.
But we know that taking huge tranches of value away from the firm without recompense is possible, as it has already happened about three times.
Imagine investing in Berkshire then waking up one morning to learn that (say) we owned only 1/3 of BNSF or Geico had to give away their risk database and couldn’t use it any more.

Jim
(still long some BABA calls…I do like the entertainment value, not the investment value)

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Baba’s first and primary listing is in USA. All the founders’ shares are in US. It will be pretty stupid if SEC force all these shareholders to convert to HK listing. Baba is a solid company (unlike many other ADRs), and provide its annual reports in very detailed well written English.

China/CCP does not equal to Xi. There’s still a lot of Xi’s enemies inside CCP, and they are increasing thanks to the poor jobs Xi is doing recently (Covid, Putin war, mass layoffs at tech firms, real estate bubble bursting). Liu He’s speech makes it harder for the govt agencies to do more damage to these tech firms. My point is they want to work with SEC to resolve the issues.

These are just qualitative judgments. It’s hard to say if I am right. Each person will come up with different conclusions depending on your background etc…

Business wise, Baba is a monopoly . It has most of Chinese people buying on its website. It uses these huge data to provide data analysis and marketing service to sellers. Big or small sellers must have it. It’s like the Amazon with some key differences, but better.

One problem with Baba is they have too many employees, like 250k. They had only 10% of these much a few years ago. I think they hired these many partial because local government wants them to do it, to support Xi’s call. Now they are going to layoff 30% of these people.

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