It is difficult to determine whether the Daily Journal Corp's 40% loss on Alibaba stock is difficult to determine, and even if this figure is most likely to be inaccurate, but Munger's move will once again trigger a discussion about the value of investment in Chinese companies.
On April 11, Daily Journal Corp. filed documents with regulators showed that as of the end of March, Daily Journal Corp. Holding 300,000 Alibaba (BABA) ADRs, down 50 percent from about 600,000 at the end of 2021.
Daily Journal Corp. is the newspaper and software business of Charlie Munger. In March, Daily Journal Corp. announced that Munger, who is over 98 years old, would resign as chairman of the company but still have a board seat.
According to media reports, Daily Journal Corp. lost about 40% of Alibaba stock.
The Chinese edition of Barron's magazine believes that it is difficult to determine whether the Daily Journal Corp.'s floating loss on Alibaba stock is 40%, and even the probability is inaccurate, but Munger's move will once again trigger a discussion about the value of investment in Chinese companies.
For a long time in the past, the investment value of Chinese companies represented by Alibaba has been hotly debated, and from the perspective of most institutions, it is still quite positive, so even Munger is constantly increasing alibaba, but alibaba has not brought him profits recently.
Despite a sharp cut in holdings, Alibaba remained a Daily Journal Corp as of the first quarter of this year. The third largest position, accounting for 15.35% of its portfolio.
Entering April, Alibaba's stock price continued to fall from the end of March, and as of the close of the US stock market on April 11, it was quoted at $101.55. Wind data shows that in the past year, Alibaba shares have fallen by 58.38%.
As of March 31, the Daily Journal Corp. Top four positions
Source: wisdomwhale.com
1, most analysts are still bullish on Alibaba
Since Munger first bought Alibaba ADR in the first quarter of 2021, Alibaba's stock price has continued to decline. China's slowing economic growth, regulatory uncertainty, the spread of the epidemic and the risk of US stock delisting are all cited as factors dragging down Alibaba's stock price.
But analysts' assessment of Alibaba remains positive.
Source: Google
Citi analyst Alicia Yap said in a summary on April 7: "Given the recurrence of the epidemic and the city's response, we believe that China's overall economic activity has been negatively affected, which has dampened Alibaba's profit growth in the first quarter." We believe that the COVID-19 pandemic will drag down Alibaba's recovery in 2022. ”
But Yap noted that given the massive share buybacks, healthy cash flow and cheap share prices, "Alibaba stock at the moment is attractive." ”
On April 8, Asset Manager Benchmark analyst Fawne Jiang lowered Alibaba's price target from $235 to $220, citing a slowdown in online retail sales growth due to the outbreak.
However, Jiang remains optimistic about Alibaba. CRM (i.e., selling services such as advertising to merchants on its platform) is Alibaba's core business, "As the macro and regulatory environment improves, we expect CMR to return to high-single-digit/low-decimal growth." ”
"At current valuations, the market seems to be blind to the value of Alibaba's key assets (cloud computing, logistics, international and local services, etc.)," Jiang said. "
There are not a few analysts in the market who are optimistic about Alibaba. In The FactSet survey, Alibaba was overwhelmingly rated as a buy. According to FactSet, Alibaba's average target is $165, meaning there is more than 60 percent upside compared to the U.S. stock close on April 11.
2. Chinese Internet companies ushered in good news
On April 11, the State Press and Publication Administration released a statement on its website saying that the department had approved 45 domestic online games last week, including "Attack on Rabbit" developed by Baidu and "Party Star" developed by Hong Kong-listed Heartthrob (02400). This is the latest batch of approval lists for domestic online game versions released by the State Press and Publication Administration since the release of the version number was suspended on July 22, 2021.
Affected by this news, on April 12, the Hong Kong stock game sector ushered in a sharp rise, as of the close, Tencent (00700) rose 3.62%, China Mobile Game (00302) rose 7.48%, NetEase (09999) rose 4.21%, Bilibili (09626) rose nearly 12.79%, and Heartbeat Company rose 0.42%.
The news is also seen as a sign of deregulation. On April 12, the Hang Seng Index closed up 0.52% and the Hang Seng Technology Index rose 1.4%. According to Wind data, southbound funds bought a net of HK$1.703 billion.
3. Can Chinese companies buy?
In the first quarter of 2022, China was the worst performer among major markets in the world, with the Shanghai Composite Index down 11.54% during the year as of April 12. Overseas asset managers are debating whether this is a good time to invest in Chinese companies.
On April 12, Bank of America strategist Wu Yi said in a note to clients that it was too early to invest in Chinese stocks.
Wu said: "Although valuations have become more attractive, the company's earnings forecast may continue to be lowered. He argues that China's credit cycle is typically 12 to 18 months ahead of the gross domestic product (GDP) cycle, and that corporate earnings trends are broadly in line with nominal GDP growth. He predicts that corporate profit growth will not improve until the first half of 2023.
On April 12, the central bank released data showing that China's financial data in March exceeded market expectations across the board. China's social financing increased by 4.65 trillion yuan in March, 1.28 trillion yuan more than the same period last year, and is expected to increase by 3.63 trillion yuan, compared with a previous value of 1.19 trillion yuan. At the end of March, the stock of social financing scale was 325.64 trillion yuan, an increase of 10.6% year-on-year. China added 3.13 trillion yuan in new RMB loans in March, compared with an expected 2.64 trillion yuan and a previous value of 1.23 trillion yuan. In the first quarter, RMB loans increased by 8.34 trillion yuan, an increase of 663.6 billion yuan year-on-year.
Meanwhile, Mr. Wu said that while China has not tightened regulations on companies further, it has not eased significantly, and "we are wary of industries that may be more vulnerable to containment measures, such as real estate, consumer discretionary (cars, hotels, clothing) and transportation infrastructure." In addition, we are increasingly bearish on insurance and media stocks because of their weak earnings momentum. Wu Yi pointed out that Bank of America favors technology hardware and semiconductors, healthcare, diversified finance and chemical sectors.
A survey of 21 fund managers and analysts in Chinese mainland and Hong Kong, China, in April, showed that 43 percent believe A-shares have reached a trough, while another 33 percent expect the market to bottom out this quarter. For Chinese Internet companies that have underperformed this year, 86 percent of respondents said the worst is over and cheap valuations will attract more buyers.
On April 11, asset management giant BlackRock pointed out in its weekly commentary that in the current context, the risk of Chinese company stocks has become higher, but given the cheap valuation, BlackRock is still cautiously bullish on Chinese stocks.
Zhang Bo, a fund manager at Wellington Investment Management, recently said that the current valuation of China's stock market is reasonable, and domestic policies are expected to continue to provide support. "Unlike developed countries, China has hardly needed any stimulus measures during the past two years," Zhang bo noted, "and we expect the Chinese government to be willing and capable of supporting economic development this year." Compared to the West, China faces less inflationary pressures and has room for further rate cuts. ”
It is not difficult to see that market analysts are still optimistic about Chinese companies, and low valuations are one of the main reasons.
Text | Barron's Chinese edition contributor Guo Huiping
Edit | Wu Haishan
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