Alibaba: The Christmas Rout Brought A Risk/Reward Gift For Bold Investors

  • China is still one of the fastest growing economies in the world. Even the weakness provoked crackdown on debt should be a long-term positive.
  • E-commerce is still one of the most disruptive sectors in world’s economy, and Alibaba is a giant in this space.
  • The current market rout has brought a severe price decline, and a quick reevaluation shows us that the risk/reward proposition has changed considerably.


(Photo credit: leighklotz)

Secular trends support online retail in China

E-commerce has enjoyed the spotlight when looking at the new trends in the retail sector. And, Amazon has become the synonym for online retail. The stock price appreciation is short of impressive and its ticker rests among the hottest right now. On the other end of the spectrum, traditional retail is under siege and investors are backing away from it.

If in the US, online retail is a hot sector, in China, it should be even hotter. The reason for that is that the legacy commercial infrastructure is smaller than the US and, therefore, no constraints to bet heavily on internet retailing.

As China transitions to a consumption-based economy, retail will play a bigger role in the economy. And, in China’s case, given what we said earlier, it will be biased towards online retail.

China’s deleveraging efforts will be rewarded

In addition to the secular trends supporting retail, we also have to consider the current policy framework. The governmental authorities are actively trying to deleverage the economy. In the short term, that is already having a negative impact on the market, but, in the long term, it will strengthen the Chinese economy.

Therefore, the current Chinese macro scenario is one that points toward a sustainable growth of the retail sector, in the long term, with possible turbulence in the mid-term.

Alibaba is fundamentally sound

We have looked at the top-down perspective, now let’s take a look from a bottom-up perspective. To take advantage of the e-commerce secular trends we will use Alibaba (BABA). That’s one of the best known Chinese e-commerce names and one of the most interesting companies out there.

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