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Alibaba is more than just China

23112020_Alibaba

Alibaba is more than just China

Most readers will know that Alibaba operates the largest e-commerce platform in China, with its Taoabao and Tmall marketplaces. Some will know that Alibaba also operates China’s largest cloud computing platform, Alicloud. But did you know that Alibaba also operates Southeast Asia’s largest online retail marketplace?

Lazada is Alibaba’s e-commerce platform across Indonesia, Singapore, Thailand, Malaysia, Vietnam, and the Philippines. The Southeast Asian region is home to over 650 million people, but the digital economy is still just 5 per cent of total economic activity. That represents a tremendous opportunity for Lazada in a massive market, with the value of e-commerce transactions expected to quadruple in the next five years.

Lazada has the right to win in this market. Already 100 million users visit Lazada’s site each month and 80 million of those are transacting customers – almost four times the entire population. And they are spending more, as the Southeast Asian middleclass expands on its way to doubling by 2030, and already Lazada’s order volume is doubling year to year.

Lazada’s users, customers, and orders

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What is most exciting for Alibaba investors, like clients of our Montaka funds, is that Lazada’s success comes for free. In our view Alibaba’s share price today does not reflect the value of owning the leading e-commerce platform in one of the fastest-growing markets in the world. It’s what we call a “real option”, that costs the Alibaba shareholder nothing, but could be worth many billions of dollars in the future.

Montaka owns shares in Alibaba. This article was prepared 20 November with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Alibaba you should seek financial advice.

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Christopher is a Portfolio Manager for the Montaka funds and the Montgomery Global funds. He joined MGIM at establishment in 2015.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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2 Comments

  1. Hi Chris,
    Thanks for the well constructed article on Alibaba. No question it has a great business model, established in all the big growth themes of the next ten years and generates substantial cashflow. But what about the risks and the moral position of investing in companies that have at least some strong ties to the CCP.

    Jack Ma is a member, but unsure he has any seniority in the party. He recently spoke out of turn and got slapped down highlighting the requirement to cow tow to Beijing and the inherent political risks. The current tension will blow over but confirms the CCP is boss.

    Then there’s the question of financial reporting and audit risk. How much risk is present relying on financial information or audits coming out of China. Yeah, there is all the accounting, auditing standards and listing rules. I am an auditor so well versed in all this. But Chinese companies that listed in the US have been proven to be fraudulent. Think Luckin Coffee and exposures made in the documentary – The China Hustle.

    Then there is the moral question. I want to feel good about where I invest my money, not just about growing it. There are lots of companies and countries to invest in. Would you invest in Purdue pharma or companies based in Syria for example?

    So what is the view and position of MGIM of the risks above?
    Thanks, Pascal.

    • Thanks for this Pascal. We take account of the political and accounting risks in our analysis and position sizing. While we uphold our values in our investments we also do not morally judge on behalf of a diverse and varied investor base. Thank you for your interest, support and investment. All the best Chris.

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