Two years ago, in the throes of the pandemic, Beijing regulators suddenly decided to pull the plug on the biggest IPO in history, sending a clear signal to investors all over the world: we can change the rules at any time. It wasn’t a good look.
After all, the company that tripped the regulators’ radar was the payment services unit driving Alibaba (BABA), the brainchild that made creator Jack Ma the richest man in Chinese history.
Two years ago, it was theoretically worth over $300 billion. Now, early-stage investors have written down the value of their stakes by about 50% . . . erasing $150 billion in paper wealth along the way.
That’s not good. And now, after years of disputes over the strategic importance of the technology supply chain, data back doors and trade grievances, the situation doesn’t look better.
Beijing is still wrestling with draconian COVID lockdowns that have upended the economic growth curve. Output has faltered while inflation remains a headache for a government that knows that 1.4 billion people who can’t feed themselves become impossible to control.
That’s a situation that tends to lead to additional crackdowns and scapegoating. Jack Ma’s existence became a question for months after the 2020 IPO failed. Other billionaires could easily follow . . . and their companies taken over or even shut down.
When that happens, overseas investors get left in the cold. It’s an omnipresent threat of letting your money flow into areas of the world where investor interests aren’t legally protected, sad to say. All it takes is regime change and suddenly world-class companies become an arm of the government.
I’ve seen it happen in Latin America. Brazil, in particular, has had endless problems with its state oil company Petrobras (PBR), which has fantastic exploration territories to work with but keeps getting distracted by the national labor unions who control the board.
Or look at Russia, where stocks are theoretically recovering from the apocalyptic flight of foreign investors . . . but Moscow remains closed to our accounts, so it’s hard to say what’s really going on there.
China has spent decades playing well with global capital. Now, while the mood around letting Chinese companies list on Wall Street seems to be lifting, I’m not buying in until we see concrete proof that the rules won’t change again to suit Beijing’s needs.
As much as it pains me to say it, these stocks remain off limits for me and my subscribers. And BABA is too precarious to own.
It’s down only 38% over the last two years, which looks deceptively mild after the losses we’ve seen in U.S. tech stocks lately. Sure, Amazon (AMZN) is down over 40% from its peak . . . but it’s up over 20% since Jack Ma’s deal got pulled.
Even boring old Apple (AAPL) is up 15% in the last two years. BABA, on the other hand, is in limbo. It can’t innovate without watching its own shadow. We have the whole world to invest in. Why go there?