The resulting price fluctuations can present both opportunities for big gains and the potential for sizeable losses. Investors must be aware of the risk profile of technology stocks before diving in, and keep their eyes open for emerging opportunities outside of the incumbent US giants. The impending IPO of Alibaba, the Chinese e-commerce retailer, will significantly increase the visibility of Chinese internet companies to global investors.
While Chinese internet companies have enjoyed tremendous growth and many of them are already highly profitable, they lack visibility globally, with most businesses operating only in China and in Mandarin.
Performance of Chinese IT companies over 1yr
Source: FE Analytics
Nonetheless, the internet is a significant long-term investment theme for China and the e-commerce sector will benefit from the country’s shift to a consumption driven economy.
More than 60 per cent of Chinese online consumers shop weekly, compared with 21 per cent globally (source: PWC). In addition, a quarter of Chinese consumers shop with a mobile phone at least once a week, compared with an average of nine per cent across the globe.
While the Alibaba IPO has not been priced yet, the company’s valuation is estimated at around US$150 billion.
In China Alibaba dominates both C2C e-commerce (with its eBay type service, where it has around 90 per cent market share) and B2C (around 50 per cent market share).
It has an impressive gross merchandise volume of over US$200 billion, higher than Amazon and eBay combined. Alibaba is also enjoying the tailwind of rapid consumption growth in China and it could certainly achieve its US$150 billion valuation, possibly even reaching US$200 billion.
Alibaba’s actual value will depend on the stock market condition at the time of its IPO – particularly market sentiment towards the sector.
For example, Weibo Corp, which dominates Twitter-like online messaging services in China, recently cut the size of its US initial public offering amid a selloff in technology shares.
Nevertheless, Alibaba’s listing will certainly encourage more Chinese companies to go public. Chinese technology companies are generally well received when they list on Nasdaq, and a deal of Alibaba’s profile and size will further enhance the image of Chinese internet firms in the eyes of global investors, driving growth.
Alibaba has done a lot of work to support future growth. Its recent acquisition of Tango goes beyond a passive investment in a social networking app; Tango gives Alibaba access to more than 200 million registered users and 70 million active users.
Chinese internet companies are realising the potential for social networking apps or chatting apps to become “portals” on mobile devices, and these will be important in directing user traffic and drive mobile e-commerce.
Tango also opens doors to mobile music and mobile gaming distribution for Alibaba, giving it access to global users, which will be important as the company builds its e-commerce network.
Alibaba now operates Chinese C2C, Chinese B2C, and Chinese-foreign B2B channels. Its ambition will now be to expand into Chinese-foreign B2C and Chinese-foreign C2C markets.
Should that happen, the company will become an even more exciting prospect, and pave the way for other Chinese firms to follow in its footsteps.
Performance of fund vs sector and index since launch
Source: FE Analytics
Data from FE Analytics shows that the JB Multistock China Evolution fund has outperformed its sector and benchmark since launch but is down 10.25 per cent as the sector is down 10.69 per cent.
Jian Shi Cortesi manages the JB China Evolution Fund for Swiss & Global Asset Management. The views expressed here are her own.