SoftBank’s string of losses inspires some traders to joke that the best way to make money is to buy when founder Masayoshi Son sells, and vice versa. Some formidable US hedge funds appear to be putting that into practice: piling into Alibaba even as the Japanese investment group dumps most of its stake.
Daniel Loeb’s Third Point has acquired 1.3mn American depositary shares in the Chinese ecommerce giant. Scion — the business of Michael Burry of The Big Short fame — has boosted bets on Alibaba and peer JD.com.
The two stocks are now the largest holdings in Scion’s stock portfolio, accounting for about a fifth of the total. Burry has tripled his stake in JD.com to $11mn, while Alibaba’s has doubled to $10mn.
Local investors do not share Burry’s optimism. Justifiably so. Last week, JD’s first-quarter revenue growth was its slowest on record. Its chief executive is leaving about a year into the job.
Alibaba’s first-quarter earnings are expected to show sales growth of less than 3 per cent when released on Thursday. The group recorded its slowest sales growth on record last year. The local ecommerce sector has long passed saturation point. It runs on thin margins as a result of heavy discounting and endless promotions.
Worse, Alibaba has been late catching up to local trends. A chunk of ecommerce sales has moved to short video and livestreaming platforms.
High hopes on China’s reopening have fizzled. On Tuesday, a fresh set of disappointing data — both retail sales and industrial activity missed expectations in April — adds to corporate earnings concerns.
Alibaba’s rock bottom valuation is striking. Even after gaining about a tenth in the past six months, shares remain about 70 per cent below their 2020 peak. At just 10 times forward earnings, they trade at less than half local and global tech peers including Tencent and Amazon.
Flotations of Alibaba business units could provide a boost. The two most likely to list first, a logistics arm and grocery chain Freshippo, would be worth about $30bn.
However, much of that value should already be in Alibaba’s $228bn market worth. On this occasion, it would be unwise to view SoftBank boss Son as a contrary indicator.
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