With the unveiling of China's Communist Party new senior leadership over the weekend, the Hang Sheng Index declined immediately over 6.2% while the Hang Seng Tech Index slumped over 9% in a single date as of 24 Oct 2022. It is certainly a nightmare that China's new leadership team have no market reformist on board and this is scaring the hell out of all investors. It does not help that the Chinese president Xi Jinping has called for regulating the mechanism of wreath accumulation in reference to private capital and "common prosperity goal" and this signaled no let up in regulatory oversight and continued campaign against Tech companies like Alibaba, Tencent and Meituan. Alibaba Group thus tanked 12% in a day and set a record 52 week low. Is it time to sell off one's Alibaba's shares in view of the China tech sector mayhem?
Sudden double digit drop burns a big hole in one's portfolio with Alibaba.
Just how low will Alibaba go? No one knows whether we have reached the capitulation stage for Alibaba but it seems it is still a long way away. I am glad that I have held off from putting down excessive funds into Alibaba and kept it below S$50K. Anyway, if one is still confident of the basic fundamentals of Alibaba as well as the future of the Chinese economy in the longer term, then one can hold on to one's holdings. I have about S$30K in Alibaba as of last week in my investment portfolio 3 (Tiger Brokers), so the dramatic plunge today will mean S$3K+ of valuation shaved off my capital growth portfolio in a single day. Personally, I will still be holding on to Alibaba and wait to ride out this political economic storm in China.
Just how low will Alibaba go? No one knows whether we have reached the capitulation stage for Alibaba but it seems it is still a long way away. I am glad that I have held off from putting down excessive funds into Alibaba and kept it below S$50K. Anyway, if one is still confident of the basic fundamentals of Alibaba as well as the future of the Chinese economy in the longer term, then one can hold on to one's holdings. I have about S$30K in Alibaba as of last week in my investment portfolio 3 (Tiger Brokers), so the dramatic plunge today will mean S$3K+ of valuation shaved off my capital growth portfolio in a single day. Personally, I will still be holding on to Alibaba and wait to ride out this political economic storm in China.
Parting thoughts
China seems to be moving backwards in the market reform policy advocated by the late Deng Xiaoping- this does not bode well for innovation as a return to communal sharing of all wealth kills off entrepreneurship and innovation if they became too skewed towards a socialism economic model (of course, let's keep our fingers crossed that the Communist party does not decide overnight to move to communism economy whereby all property and economic resources of capitalist are confiscated and converted to State ownership). The "common prosperity goal" emphasis also looks set to further reduce the gross profit of Alibaba. The key contentious question will be at HKD61 per share for Alibaba, whether does this already cover all the negative downsides and is Alibaba oversold? Do share your thoughts.
This is not economy storm. This is political storm caused by CCP and Xi Jin ping. That is.
ReplyDeleteHi Kelly, yup. Have added in political economic storm to be more precise. A chicken and egg issue arises-Politics drive economics or economics drive policies in politics? Also, the zero covid stance that everyone expects Xi Jinping to soften did not materialise plus the debt laden property sector making up 25% to 30% of GDP already causing severe stress on the Chinese banking sector.
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