The Shanghai Composite Index has been hammered as of late, down a whopping 41% from its high earlier this year.
The decline in this index has naturally spilled over to large Chinese companies, mainly Alibaba (BABA), which has fallen 46% from its high amid an increase in macro-related concerns.
However, Alibaba CEO Jack Ma made some great points in regards to these concerns, statements that BABA stock investors should listen to and acknowledge.
What’s BABA’s CEO Saying?
At the Clinton Global Initiative meeting last week, Jack Ma had a very simple message: Americans worry too much about China when they should be worrying about their own country.
Ma makes a great point in realizing how U.S. investors and economists are always watching China closely and making the assumption that Chinese consumers will react much like Americans in a turbulent market. That reaction is fear and an unwillingness to spend, which for an e-commerce giant like BABA is not a good thing.
Ma addressed this concern, saying the assumption is inaccurate. He said, “You Americans love to spend tomorrow’s money, and other people’s money maybe. … We Chinese love to save money.”
Importantly, Ma is right, with China having gross savings as a percentage of GDP at 50% versus just 18% in the U.S. As a result, the thought process between a Chinese citizen and an American are most likely completely different.
According to Ma, this difference in thought process is a result of Chinese people being “poor for so many years,” thereby implying that their saving habits differ greatly from U.S. consumers. As a result, Chinese people have money to spend when the market is bad, and aren’t as fearful in a bad market.
Meanwhile, Americans are fearful because, according to Ma, they don’t have money set aside for those bad times.
What Does This Mean for BABA Stock?
If Ma is right — and it appears that the data is on his side — then the aggressive selling in Alibaba stock could be a great investment opportunity.
Specifically, the amount of merchandise sold on Alibaba’s sites continues to soar, increasing well over 30% during its last quarter. For a company that controls about 80% of China’s entire e-commerce industry, such growth is a good indication of the e-commerce market as a whole.
Not to mention, BABA stock may be treated like a pure play on Chinese e-commerce, but in reality BABA’s stock is hedged against the billions of dollars that Ma has spent investing in companies all across the world, thereby diversifying BABA stock.
Bottom Line
Alibaba owns large stakes in companies that range from mobile applications to logistics, global e-commerce, education, media and more. In fact, BABA even owns part of a professional sports team, and like I said, these investments are spread all throughout the world.
This approach to investing makes Alibaba stock less of a Chinese play, and more of a well-rounded global investment. It suggests that the concerns regarding BABA stock are overblown, and backs up Ma’s comments implying that worries surrounding China’s e-commerce market are inappropriate.
When combined with the fact that BABA stock trades at about 23.5 times its free cash flow total for the last four quarters, then U.S. investors must entertain the notion that BABA stock is presenting a great investment opportunity, and that our assumptions of China may not be correct.
As of this writing, Brian Nichols owned shares of Alibaba.
