More often than not, anyone who has invested in China stocks would have Alibaba in his portfolio. Or a more extreme case being having Alibaba as the only China stock.
I am not sure how Alibaba became synonymous with China stocks – maybe because of the outspoken Jack Ma that created all the awareness for his company.
But the fallout of Ant Group IPO and a series of regulations have dragged down Alibaba’s share price by more than 50% from the high, disappointing many investors to the point that some say China stocks are uninvestible.
I think investors misunderstood. China stocks ain’t just Alibaba. They are not even just tech companies such as Tencent, Meituan, JD.com Pinduoduo, and Baidu.
I know that tech stocks’ performances have been great before the crash and many were excited by the relentless bull run. But China has about 7,500 stocks (A shares + HK) while US has 5,000. There are a lot more than what most investors see.
For example, I think the consumer brands have the most potential as China rises.
China has a huge domestic market of about 600 million in the coastal area and their affluence is rising. After focusing on exports for the past many decades, China has finally turned inward to spur domestic consumption, a.k.a dual circulation economy.
According to the World Bank, China has lifted nearly 800 million people out of poverty in the past 40 years. This is a record. The previous generation worked in factories and built products for the rest of the world; made the money and now are able to consume more products.
Private ownership of businesses have allowed a group of entrepreneurs to be millionaires, if not billionaires. They could now enjoy finer things in life or even buy many Singapore properties at one go.
The rising consumption is very favourable to consumer brands. This is akin to the US booming years after World War II. And Buffett had the golden opportunity to buy consumer brands like Coca-Cola, P&G and See’s Candies and he rode the boom.
Now, many of these US consumer brands are mature and growing slowly. Meanwhile China is just starting and presenting another ‘Buffett-like’ opportunity in Chinese consumer brands.
Some of the consumer brands with the large market cap include Moutai (baijiu), Haitian (condiments), Yili (dairy) and Midea (home appliances).
These companies often exhibit sustainable growth as well as having the habit of raising dividends. They are also more resilient during recession as some of them are staples.
The message is that don’t look at China stocks as just tech companies only. There are a lot more opportunities beyond that.
