In my last post on the subject, I reviewed what I believed were the main risks associated with investing in Alibaba. I know little about China but something about emerging markets and markets in countries ruled by authoritarian regimes.
My conclusion was that Alibaba was “investable”, targeting an
entry price for the ADSs of up to $160 and an exit price of $220, unless
conditions changed.
I also noted this: A quantum change in risk level would be
the entrance of the Chinese state in the share capital of Alibaba.
Over the weekend, the Wall Street Journal ran a story according
to which Chinese state investors were looking to take an ownership position in
ride-hailing DiDi Global Inc., months after regulators had punished it [for
listing in the US against their wishes].
The WSJ went on detailing that the Beijing municipal
government was coordinating such project and that the goal was to gain enough
voting power to have influence over the company. It added that DiDi would be merged with a
smaller competing rival, Beijing Shouqi Group Inc., itself backed by the city of
Beijing. The same general story was first
reported by Bloomberg.
Didi has denied this story.
Earlier today, the Beijing city government also denied the story.
I don’t know where the truth lies, but the WSJ and Bloomberg
are serious news organizations, and they seem to have relied on more than a
couple of sources.
Maybe the WSJ and Bloomberg were fooled, but then whoever
planted the story felt that the Chinese government actions had been such that the
story would be believed by the likes of Bloomberg and the WSJ.
It may also be that the Beijing city government’s reading of
the regulators and president Xi was that an investment in DiDi had a good chance
of succeeding. Or the city of Beijing
may have received a green light from above.
Whatever the actual situation, I feel that the yellow light is
turning orange. By that I mean that, at
best, Alibaba’s price-earning multiple could decrease, slowly or rapidly, to a
range of 12-15 vs. 19-20 now.
Let's remember that Russian state controlled Gazprom, the biggest natural gas producer in the world and a very profitable company, is selling at a price-earnings multiple of under 4. By comparison, Chevron sells at a p/e multiple of 16.
