China Tech Crash - Is It Time To Buy?

[Music] welcome back guys to another roundtable my name is adam victor with hi hello hello you're the fifth person joining us on this roundtable and today we're going to talk about whether there is a stock market opportunity in china right now trying to slash hong kong so i mean a lot of things have been happening i think there's a lot of news that's been going around but um if you guys are not clued in yet maybe just give a bit of context about what's happening so what's happening in the china slash hong kong stock market at this point in time so it's an exciting time and i look at the hansen tech etf which actually consists of 30 largest uh tech stocks in china like mantuan baba tencent sunny optical choice show and all that all the rest of the tech stocks okay so you look at the index itself i think the performance uh over the last uh six months or five months uh the index actually has dropped about close to 40 over percent that's at the time this recording and this is actually a lot worse as compared to what we have seen uh last year during the coffee sale down okay so last year covered sell down uh the top pick to the bottom is actually down about 29 okay so i think things are pretty much intense right now and mainly because of the regulations uh news that we have been hearing we have been reading all over the you know the media right so yeah so i mean that's a pretty big thing i mean covet was a huge thing affected the whole world yeah but that only i mean the chinese or hong kong stock market only dropped 20 years 20 and this one this time around the regulatory crackdowns have caused the market to fall 40 percent yes that's a big big one so i mean what's happening so what is what's with all these like regulatory crackdowns what's so big about it that's causing the market to drop so much what's happening there yeah so basically is the series of uh regulatory intervention by the government or in china right so we we can all remember the first uh intervention came in when the n-group ipo so that was the first one they did an ipo yeah of course because it was still being slapped by the government right and after after that case then it came with the anti-monopoly right where all those big tech giants have been fine and they are not supposed to have monopolistic uh practice explosive agreement yeah and of course the recent one is the tt right where the government told them right to wait for the investigation before they go ipo and they just force their way through into the u.s market then china start to block the merger for for tencent between the towie and huya then followed by recently they crack down on the music rights because tencent owns i think 80 of the music rights exclusive in china so they crack them down say that you cannot have exclusive rights then followed by the tutoring crackdown right because all these students charging very very high fee which caused a lot of uh affordability in china and also a lot of stress in china because a lot of the asian parents are focusing a lot on getting their kids uh to study as early as you know two three years old you know they start studying recently i think one or two days ago they actually suspend new new user registration right uh that because of the they need to uh abide with the security compliances right then of course why the major uh shares have been uh tanking right now is because of force uh due to a lot of the fund managers also dumping the chinese stocks especially like katie woods one the currently the most famous fund manager she's dumping all the chinese stocks and finally of course i think the news yesterday or what china said that they're going to continue to launch six months intensive right in investigation and all those uh practices right so this is going to be a six-month thing yeah that caused the market to panic and sell down and one more thing just recently made one share price dropped by more than fourteen percent uh after the new crackdown on them okay and basically the chinese government is telling them that you know they need to treat their uh you know riders uh as an employee give them benefits you know and stuff like that so the cost is probably going to go up for mate one and because of that i think price dropped so it's the you actually seen a lot of bad news in the market that's the reason why i think the share price of all the tech company in china i just have to come down okay so if you look at 10 cents dropped by 48 and then alibaba dropped by 31 percent and made twice a drop by more than 50 percent and across other companies tech company actually have dropped easily 30 40 50 right and the edutech companies i think have dropped but as of today uh more than 98 wow i think that's almost gone already man because uh what happened with eddie tech companies is uh the chinese government basically tell them that you know you have to become a non-profit company yeah you can't make money sorry yeah so there's basically a very big risk on this if that if that do if that regulation were to go through they literally wipe out everything on the for those private companies right i think more or less is likely going to go through because you just look at the market reaction is pretty much like hey that's it yeah and they always have to ban all those uh weekend tuitions they also ban uh kids i think six years old and below to have a new solution or something right and also doing your vacation cannot have duchenne well i mean i think there's a good thing for kids but it's just really interesting to see how the chinese government is really kind of like social engineering the whole thing that you can't do this you can't do that yeah it's just affecting the the business i mean the the market as well yeah it's really really interesting so for the all this tutoring company i think is because uh even if they didn't really go through to become non-profit right the price of the way they're going to charge a tutoring right fee right is going to be regulated so you can expect lower revenue and profit in the near future so definitely they are they are being literally white ready yeah so yeah so it's kind of scary right we have so many news in the market that are all pointing to the same direction yeah the market will tumble yeah so it's very scary especially those people who have share in china tech i think that by now they're probably down by 20 30 if they bought it this year yeah but of course like like i said you know this deutering thing is the really really bad news right but not everyone is like them right even even this right so there's like cases like maybe uh can you want to talk about alibaba and all right right yeah yeah yeah i mean i mean for for alibaba i mean alibaba is basically more or it started out with n group right there they're supposed to lease and of course jack ma came out and he just talked about you know how the government is stifling innovation in china and then because of that i think the big boss of china actually came out to pop so called the ipo and himself so i mean he got the honours of that so i mean like then then after that uh from then on they want to investigate um alibaba basically uh of the exclusive agreements that they have with the merchants and because as a result of that they got fined about 18 billion rmb which is about uh 28 billion um 2.8 billion sorry 22.8 billion us dollars it's kind of amazing the speed of you know crackdown is so fast in china it took them i think four to five months to crack down and group and now and group is they survive right but they are at a much lower valuations compared to their pre-ipo kind of level but as compared to us i think a lot of us tech if you are ftc trying to charge them for anti-trust issue usually you will drag years right so i think in china they are pretty much very efficient in that way yeah yeah yeah i think i mean it's not just one thing so i think victor you pointed out the entire timeline it's been going on for i think at least a year almost since the end group since late last year it's almost like more than half a year half a year okay so it's like a whole series of things that it really looks like the chinese government is coming in they want to set regulations to how business in china can operate because they don't want monopolistic companies and stuff like that but the speed of the the crackdown is really fast like you say i think i remember microsoft's uh anti-trusting took about 10 years to settle in the u.s and the courts and everything it takes a long time but china moves at a super fast speed yeah and the main reason also because they're different in terms of culture right yeah i think if you look at the u.s if it's not entry trust is issue on certain big tech companies the bitter community will say oh challenge them right and then they go to the car they're dragging donkeys right social media you can see that there's a lot of fear in uh the you know uh in the chinese stocks because of the government intervene intervening into all this uh regulation and all this right uh but my take is that because western side they don't understand the asian culture right right we talk about the parents and the kids right western kids we negotiate asian kids okay you you yeah you can get out of the boundary i just can you right and you just go back okay so in do you have to really understand how asian works right asia works on rules you know if you play within the rules right you're safe okay right so right now all these chinese companies sorry they are going back to playing the rules because they i think the past few months they probably is testing their parents and then the parents said uh came them and said get back to your rule you know and now they're all going back right right of course the the the the most naughty kid is the education company that's why they're going to get the worst hit right i think the scariest person in the room is probably uh jack ma right he went to criticize the regulator and that started the whole series of yeah he was like the older kid yeah voiced out against the primary belt first and then it's like okay and then the rest of the smaller ones came from yeah and we no longer hear from him but of course we must all agree you know like oh all asian parents no one wants to kill their own kids right so so they just wanted to go back to the rule that's all yeah so i think in china to succeed they probably have to you know um bow down to uh ccp all right china's party yeah so i mean i mean let's not go into that too much i mean there's a different different ways that different cultures will operate different countries and all that but i think the main things and as investors is that what we're going to look at and how this is going to affect the companies that are being affected right now so i think let's go cover some of the bigger companies some of the bigger names how all these regulations affect these companies their business how they do business and whether there's a impact long term so any any of these companies you want to bring up i think it started with anger right so i think we saw the impact alibaba price that came down by 29 but it got worse today right and then subsequently you have ptt prices dropped by 58 at the time of this recording and the impact to them is mainly because their apps got suspended so they can no longer sign a new user okay so this is a pretty big impact you don't know how long this ban is going to last right and then uh of course moving on to uh uh tencent i think the apps also they decided to you know self-rectify okay they call it you know where they they volunteered to take the app down and then fix all the regulatory uh so-called security loopholes that they actually found out and they were going to list the app again in the early august okay so all these are the way i look at it i think is pretty much have a minimum impact maybe uh for tencent and baba has actually panned over after the end group okay so yeah the impact for mate one of course if you look at it uh the cost like i said it will probably gonna go up for them because now they have to treat their other freelancers as full-time employees yeah yeah yeah so for alibaba it's actually uh they're not affected by it a lot because uh if you look at the recent news right china retail sales actually went up by um 18 uh uh to 42 trillion uh actually yeah this is after the anger crack crackdown right yeah after the anglograms so it went out and of course they generate recently they reported earnings that earning earnings went up by 40 and uh gmb basically the total amount of sales that they made right in china went up from 6.6 trillion yuan to 8.1 trillion yen so everything is going from their bottom line is growing by 23 year-over-year excluding the fine so uh so overall it's actually doing well especially the uh cloud computing is growing by sixty percent uh fifty percent actually more than fifty percent because they started from a small base and then more some more companies are actually going towards the digitization phase right so yeah that's alibaba yeah so there was a news that victor mentioned that you know they're going to crack out continue to crack down this sector for the next six months so let me maybe give you guys a contact with what exactly happened in china so what happened in china is that they have it tends to have their own ecosystem alibaba by their own ecosystem and then you know uh baidan said their own ecosystem and that and the problem in china is uh why there's antitrust is because all these big tech companies are you know must using their muscle power to flex you know to tell other their users not to use other people's platform how they do it is very simple they block the sharing like for example if let's say i share i found a deal on taobao for example i want to share with my friend on wechat and on the moment i share the link will be blocked by tencent because tencent alibaba is comparator okay okay and the same thing for by dance right top is very popular in china and they can't share with each other so they are blocking each other they are erecting a wall against each other and that's not good for the market it's not good for the consumers your consumers the internal user experience is dropped and in term of merchant let's say if your alibaba merchant you cannot go to pin toto or jd.com it's kind of sad right and you know merchant now because they got so much sales coming from taobao team or now they can't put their list their products on competitors product like jd.com or even pin toto so in a way it's not healthy right the market these users are trying to have exclusivity all right i mean in the us you don't really see that you know it's a free market is everyone are free to compete it's a fair competition so what chinese government is trying to do is basically to convert all these tech giant and then you know make sure that everyone have a fair chance on your competition even if you're a young new company you want to convey the e-commerce market you're free to do so you can not go and attract new merchants if you can all right but basically what china government is trying to do is that they want to crack down on all this monopolistic behavior in china i think the it's very clear that this is going to come down but moving forward i think we can expect that now china is moving towards a better china especially for consumers uh you will see more innovation as you know all this exclusivity ends and of course the consumer identity would benefit in terms of pricing in terms of experience right so you are leading towards a sustainable growth right but among all these tech companies they will have more competition right but these guys have big resources right they have a lot of investment and all that i think they're already at they already built to the size right they already dominated right so so there's definitely competition coming in but then they are dominant in terms of the distribution channel let's say for example tencent they already have the distribution channel to access to the user so if foreign players want to enter into uh china they they will probably want to work with they still want to work with 10 cent right instead of working with a smaller player right so so there's two advantage over there it's just that i felt it's a temporary issue right it's like they don't need all these things to actually still compete and dominate the market they're already so big you don't need all these anti-anti-competitive behavior so actually what the chinese government is doing is that they want the overall health of the market and the economy to do you have to be more dynamic and be competitive so that you know companies do better so that's what they're doing right now yeah and there of course many other things they're doing like you know cyber security because they found that the mini mini uh wechat mini program so they have a lot of mini apps within the app itself in china they call it super app okay it's like the whole ecosystem right you can you know go and shop e-commerce on wechat yeah and they make payment using wechat pay and stuff like that so it's similar to the whole experience okay so they found that percent of the mini apps on uh they actually randomly select and then sixty percent of the app actually have a security loophole right i mean uh it's you know it's prone to hackers that you can actually utilize all this data and then use for other purposes so i think because of that i think we check voluntarily to take it down and then fix all these issues so it's a good thing right because if they don't fix it in the future you may see uh another cambridge analytica happening in china which by then is too late it's already happened right i mean we saw that i mean it would be a like a national security risk assessment that's a good idea yeah all the data or chinese citizens yeah everything's all there which is what happened with tt right they went to proceed with ipo and they got so much data and no they even have the where you stay what time and your work and they went to do their study on orders or government officials what time and what's not work you know which one is the busiest among it's kind of like you know now i think the government is going after them why are you using all these things all right so let's bring it back together so a lot of things are happening governor chinese government is doing a lot of things to kind of like i think move the economy and business practices into a more modern you know age in a way yeah so i think but i mean still there's it's kind of like everyone's fearful it's like a crisis they think it's going to be six months of uh crackdowns all that okay people are scared so you can see the prices have gone down 40 that's a lot for any stock and i mean if someone who is not familiar with all this they're going to be really really scared of what's happening so i mean just want to sum up that all this is for the good of the economy yeah the chinese economy do you think there's anything to be worried long term if the company fundamentals are good do you think i mean if you if someone was asking you these questions what would you say it depends on the companies right if you invested in educated you probably concave all right because i think china is very clear they are telling all this company don't use vi structure which is a purpose special purpose vehicle right which a lot of chinese companies use it to list it outside of china and i think edited companies are probably much in the deep sheet uh but if you invested let's say in companies like tencent alibaba alibaba has pretty much passed through the n group stage uh i think those are have a very small impact there there are some bigger impact maybe on maytag and the cost will probably go up uh and not tt now is still a bit of a big overhang over there because you don't know how long they're going to ban the app and whether they will pull it out from the us ipo because dt is a national security they have a lot of data there related to national security right so it's very sensitive all right so i think what victor is saying the chinese government the parent doesn't want to kill the kid yeah they want the kid to grow up right so i think that's what's happening uh but i think the companies that you pick if you're gonna invest in china right now has to be really important because the like you said education is a big big question so i mean i'm sure chinese stocks are on our radar right now they definitely are and on a lot of many people's radars as well okay so we're not going to cover so many but i think let's just zoom in on one or two of the big names probably 10 cent alibaba these companies are on probably on your radar how would you value them would you think they're a good opportunity for someone to look at right now so um for me i think the top two is basically alibaba and tencent you know because these are really integral in the chinese the lives of the chinese and they have the most capital to keep growing more most promised promising to drive domestic consumption so i think one good example is since everybody's worried about regulatory risks so i just got this article by straight time it's like china is looking to drive up domestic consumption it's important to know how the chinese government is thinking so they are saying that they're going to drive up uh focusing on these two areas which which is e-commerce and automotive industry so in a sense alibaba is actually primed to benefit from the driving uh domestic consumption and then as you look at their revenue 80 percent sorry 80 85 percent of it 87 actually comes from their e-commerce platform and then uh only eight percent comes from cloud computing so this is 95 percent of their revenue so and cloud computing is up and coming could potentially take up a larger part of their revenue so if you look at this whole channel actually the rest are i don't really care about other segments of their business because they are just innovating or trying to add more features so they make their to make the platform or ecosystem more and more attractive but then this is the chunk of their revenue and due to what has happened in the past they are trying to be more competitive competitive right now so there are few things that they're doing they're investing all their profits that they're making this year back into the business and one thing that you can one thing that's coming out of it is that they're trying to open the global market so they're competing with amazon they're trying to do a delivery within a 72 hours which is three days right so whatever what you order anywhere in the world they'll deliver it to you so that's actually very competitive and that's they have a huge advantage uh going into the future so that's alibaba is not basically not affected by all these regulatory risks but at the same time i just want to say that if anyone is afraid about all these regulatory risks they should limit their chinese exposure to maybe like 10 or 20 percent portfolio and not go too crazy about it because we don't know what the next move that ccp is going to make right because it's very hard to predict i think that's why investors are pretty much scared yeah cathy would cash out everything because all this uncertainty so the regulatory overhang will stays for a while okay maybe i'll cover on tencent uh so tencent is uh basically a company that i think they are pretty much number one in china in terms of number users in the uh china that they have on wechat i think they have closed about 1.2 billion together with the international wechat app uh so there is one point two billion not a million billion it's a lot of people it's basically more than twice of the largest market yeah it's crazy right uh and that will gives you and not only they have a user platform they have a lot of other businesses within the wechat itself right so i talked about e-commerce so jd and pinto these are the two e-commerce platform that people shot the staff on the wechat itself so it's pretty very very powerful over there okay so if you look at the revenue breakdown by uh segment for tencent you can see that i think social network is basically the the wechat that they have and then the subscription with qq they also own qq over there uh it's contribute about 22 and then you have um games you contribute about 32 almost one third of the whole uh business and then of course you have online advertising uh where you know people can put ads on the qq and also we chat social networks so it's wechat is like a facebook or social media at the same time it's also a whatsapp two in one combined at the same time there are a lot of mini apps within that wechat okay uh so online s account about 60 and fintech which is they have we banks which do a lot of so-called yeah fintech especially right so multi and group but they are licensed right so they don't have they don't need to suffer what andrew has suffered because they are properly licensed digital banking company in china uh and on there and then they have cloud also uh i think it's also alarmed together under the business services right so they are the second largest cloud provider in china after ali cloud okay and of course the rest contribute less than one percent so you look at the revenue breakdown actually this company within a company there are many businesses it's almost like a baksha at the way of uh china in the tech arena right so as well very well diversified what is the impact of regulations uh i think very minimal they have been on the exclusive agreement for music swimming on all that they are still the owner right i mean they still can earn income they will be more competitive for sure but for me i subscribe to spotify i won't switch out even though there's apple bay apple music and then many other type of music streaming providers and they have the best catalog in the market so even with computation i don't see that it's going to affect them and tencent music is probably a tiny part of their contribution right and of course you have those as you take that they also have the investment in those are very small for the overall investment portfolio okay so i think 10 cent investment portfolio i think is about close to 2.5 trillion okay mark the market that's our first quarter of 2020 and those are basically peanuts yeah so it's pretty sizable okay so i think tencent is a business that will be very affected uh insignificant i think by the regulatory issue maybe they have lesser ads from those eddy tech companies all right so i think that's a pretty good i mean that's the overall having there's a roundup of alibaba and a rundown of tencent yeah you guys are saying that i mean we've gone through the business and everything that these guys even despite the crackdowns six months after this whole thing blows over they're going to still be around yeah this is going to be the 800 pound correlation yeah five years ten years down the road you're still gonna need this guy and china government also gonna need this guy all right so really quickly would you i mean no recommendation but would you pick up alibaba and tencent at this point in time but i bought you bought your answers so we are buying it so you need to discount it so again not a recommendation to buy or sell but basically we have bought shares yeah by intensity and it couldn't be more attractive right now trading at covet prices covet valuations basically okay yeah yeah and yeah so this is from very serious uh sell down that we are looking at they are at coffee valuation but the business is stronger right now yeah yes yeah uh so the valuation is actually a lot more attractive and the market has expanded and no kovid has accelerated digital adoption in china and the rest of the world as well okay so this is structural not temporarily right so i think uh the sky is right for them right even though all these are short-term there's clouds again right yes so i think a lot of people are concerned about the vi structure then say whether if you have a direct ownership to the businesses if you invest in hong kong the answer is no because hong kong also is open to foreigners investing into uh the business and of course the the government chinese government don't do not like any foreign ownership uh in their internet or telecommunication businesses and then at the same time um i think you don't you don't have to worry too much about you know what's happening just limit your exposure to the uh chinese stock and um uh the chinese government will not just pull the plug on most of the chinese companies because it will make people lose yeah they are one of the top super power and they don't want the whole world to go against that even they don't like tt you know security which they can't just say you know tt you close your business a lot of millions of people are jumping on the riders and all that yeah yeah all right so yeah so i think it's a so just to keep uh that perspective in mind is that you know eventually uh when they want to raise money in the future it's best to you know use the global markets the capital markets basically rather than using taking money out of your own pockets although china has a lot of money so yeah you don't want to lose that confidence so in the same way they will try to maintain that trust so it will not just disappear overnight you know okay yeah so i think we can wrap up right now so i think again not recommendation to buy yourself please do your own research your due diligence on the chinese market and the companies you're looking at but we just think that it's a good opportunity to have a look at it right now because of what's happening so i think there's a there's a saying don't let a crisis go to waste yeah yeah so i mean i think there's something to look at right now in china especially if you're interested in that market please do your research so i think that's pretty good workout so 10 cent uh alibaba pretty good uh i mean they're dominant in their markets yeah many more so of course and many more as well we can cover everything in this round table but we just want to give you an update of what's happening in china if you didn't already know and the companies were looking at i mean the obvious names but we think that after this whole thing blows over there's still going to be dominant players in the market all right so i really hope you like that round table and then give you some ideas about what you can do right now or if you already invested how you can feel about this thing uh if you're fearful you know that i will give you a bit more insight into what's happening and that makes you feel a bit better as well all right so yeah yeah some people yeah so don't worry too much i mean just follow the news and see what's happening so once again my name is adam this is thank you kenny thank you thank you for joining us for the fifth person if you like this content please hit the like button tell us that you like our discussion subscribe to our channel many more roundtables coming up as well any comments questions what's happening in china put them in the comment box we'd love to have a conversation with you as well so once again thank you for being here and we'll see you around again

Channel: The Fifth Person

Views: 22,791

Rating: 4.9014559 out of 5

Keywords: the fifth person, china tech stocks, china tech crash, didi, meituan, tencent, alibaba stock, tencent stock

Id: EStrQz-YBck

Length: 27min 55sec (1675 seconds)

Published: Thu Jul 29 2021