Alibaba can explore China, Semple VanEck

Last week, the People’s Bank of China (PBOC) announced that it had launched an antimonopoly study. Analysts believe it is looking at whether Alibaba wants vendors on their platform to sell only there and not through competitors, a practice known as “build one of two. ”

Regulators are also looking at Ant Group, a one-third-party fintech company owned by Alibaba. They examine whether they should treat Ant more like a bank and manage it that way. Ant recently cut off what was once scheduled to be the first ever public offering.

Alibaba shares gained nearly 10% this year, compared to the 16.3% gain in the S&P 500 index.

David Semple, $ 2.6 billion portfolio manager

VanEck Emergency Markets Fund

(GBFAX), says Alibaba can hit other people on product and service quality even if regulators cut its wings.

He spoke recently Barron’s about his views on Alibaba and other Chinese e-commerce stocks, and other investment ideas. An edited version of the conversation follows.

Barron’s: What are Chinese rulers looking at?

David Semple: It is similar to many other regions in China where regulatory development has not kept pace with economic development. Basically, entrepreneurship attacks green areas and then the catch up is more of a black line. Some people will be on the wrong side of that; there will be some practices on the wrong side of that, and that is what they are tidying up.

It was kind of an open secret in the industry that there were some practices that were pushing the envelope, and I think that ‘s probably the point. It’s more about industry best development and consumer protection.

I don’t think it’s inappropriate that Jack Ma has been visible until recently and now he’s become invisible. It is clear that much of the fintech development was in areas where the PBOC was uncomfortable but needed a little more politics to start jumping in and better regulation. People work well about those rules happening and paying attention to them. But things will settle. There are very good areas of opportunity. It does not detract from the structural growth of many of these companies.

For Alibaba, it doesn’t matter which way you attack it. There is value. It is just a matter of time as to how long it will take before that is reflected back to the share price. We still think it’s a good basic e-commerce business and adding sensible multiplication to that largely means that everything else is free. That’s the value of it. Will he play over the next month or two? I do not know. But we see a lot of value.

Was there a catalyst to get regulators to work now? Was it an Ant Group IPO?

That would be a real consideration on my part. I do not know. The Ant IPO is unique. Do not underestimate the selling interests in China. The banking sector is largely state-owned, and would be reasonably happy to cut its wings. The strong truth is that he didn’t, reasonably, look like he was playing on a level pitch. That was the reason for this push back.

Alibaba is not the only company with ban agreements, we were told.

Others do it elsewhere in other countries in other situations. But I think in the long run it just means a delta of growth a little smaller. (Alibaba) can affect service quality. It is very competitive. This is the irony. This strong competitiveness led to antimonopoly regulation. The h-up-and-comers—JD.com and PDD – if they can, you bet the base dollar that they’re going to do that too.

So are regulators just targeting Alibaba?

The usual practice I have seen is at least in many of these cases as the Chinese say, where you throw stones into your lunch and everyone notices to the ripples. In other words, there is an example to be made here and everyone should sit up and pay attention. I don’t think it’s particularly related to Jack, but if the parallel benefit is to reintroduce it, that’s an added advantage. But it applies across the region.

But you have to be careful. Because this has been a remarkable innovation laboratory across the globe. In a country that wants to test its credentials for innovation, this is an area that can be clearly identified. So there is definitely a balance.

How does this affect other Chinese internet stock?

It is clear that the competitors are taking advantage of this if you think that Alibaba is going to cut its wings. JD and PDD are the two things that stand out. There was concern that this could affect local service companies, for example

Meituan Dianping

(3690.Hong Kong). They are leaders in local services (such as food delivery), and compete face-to-face with Ele.me, which is Alibaba’s local services business. And Meituan is partly owned

Tencent Holding

(700: Hong Kong).

It has become apparent to me while watching games that Tencent’s grips are everywhere or instead of the penguin’s footprints everywhere. There are many areas that could be under the microscope.

The Ant IPO is a great IPO but not a big investment.

Why do you say that?

The hype, the happiness. The IPO so that it didn’t work was going to do really well. Everyone was excited about it, everyone was scrambling for stock. But the monetization aspect of fintech is more difficult than people think, especially if the fintech men have to play with the same set of rules.

Where else in the world are you looking?

For e-commerce? India is clearly a big one but the ability to participate in it is largely curtailed as the real ones in India are private or part of larger companies. In Poland,

Allegro

(ALE.POLAND) is a simple standalone e-commerce company. In Russia,

Ozon Holdings

(OZON) listed. Again it is a very simple e-commerce business.

Then there’s what’s happening in Southeast Asia and who’s going to win there. Shopee [the ecommerce business that is part of online marketplace

Sea

(SE)] based in Singapore and most of their profits come from Taiwan but their footprint is all over southeast Asia. What is amazing is how well they did in Taiwan. But there are several unicorns [in Southeast Asia] which is involved in e-commerce and local services, particularly Lazada, which is partnered with Alibaba.

SEA is good business. Our concern is that the game industry is based on a very narrow set of games. And then there’s the evaluation. SEA is very well done, has grown very fast, but at a 10x campaign value for sale, is that right? Who knows. Being overweight because it bothers me.

What about outside e-commerce? Are there any stocks to look out for?

We like BTPS, [which is 70% owned by

BTPN

] in Indonesia. It is a group loan model based on women, so they lend to groups of women. They all depend on each other and separately for the loans so you will only get along with your trusted friends. It is only for productive uses. So if you want to set up a stall, that is what you will get for the loans. This comes with a lot of financial education. It is quite possible for these women. It has been a good stock for us. At the time of the pandemic the price of shares went down but went up properly.

We have one of our long-term holdings in South Africa,

Movement capital

(TCP), a company that lends to small bus taxi operators. That’s how people get around in South Africa if they can’t afford Uber, taxis or cars. If you are in a township and need to get to work, you are looking for one of these taxis. They are individual owners. These people lend to them. They monitor the location of the buses so that they know where the alignment is and if there is a problem. Is the operator sick or is the cab broken down? They will get help or fix it. It is very capable. It has been very optimistic for us to be invested in this company.

Write to Liz Moyer at [email protected]