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Investors and the Alibaba Leap of Faith

Just watched CNBC news that Alibaba’s Single Day sold $75 billions in world’s largest shopping binge, a lot of small merchandise from US. I am surprised. This makes you wonder if the I.P.O. would have made the Ant Group ‘too big to fail’ in the eyes of the Chinese Communist Party. In the U.S., ‘too big to fail’ means that the Government is ultimately liable for failures of (privately owned) banks, as evidenced in the 2008 debacle.

The move by Beijing’s communist party leaders is a potent reminder to China’s population that, despite all the seeming trappings of “freedom” and “advancement” that the Chinese people enjoy, they are in fact neither remotely free nor advanced. During pandemic, people stayed homes and seldom went out to places. After the lift of travel restraint orders, people go places and want to spend money. This is one way to express their freedom by spending more money and also to prove their existence.

This is not a company-specific risk. Virtually all Chinese ADRs listed in the US adopt the VIE (Variable Interest Entity) structure. It maybe fair to say that the concentration of control of BABA’s mainland assets accentuate the risks associated with the VIE structure. By focusing on China practice, VIE is very prevalent and the Chinese authorities implicitly endorse such structure. Given there are more than 100 companies listing in US or Hong Kong using this structure, the whole legal market in Asia believe the risk to be very minimal, if any. Alibaba is too much hype, even more than the usual IPO. It’s a transfer of BILLIONS to a Chinese platform that specializes in counterfeit goods. I’ll not participate in this IPO. Too much risk.

As P.T. Barnum purportedly so famously stated: “There’s a Sucker born every minute.” In this case the Suckers are likely to be Retail Investors who can’t get in on the IPO but purchase at an inflated price when the Institutional IPO buyers unload their shares. This company controls the largest e-commerce platform in the largest e -commerce market in the world. It’s also protected from too much competition by a government that is closely intertwined with it’s operations.

It is extremely misleading to write that the IPO “soared” – in this case – is profit only available to financial market insiders, as you say. But every dollar of it is money left on the table by the company going public: it’s the difference between what the shares are worth and what the company received. The financial press always reports a big pop as great news for the company, but this is a remarkable bias; the bigger the pop, the bigger the percentage of the company’s value that was handed to connected members of the finance community.

https://www.nytimes.com/2016/05/26/business/dealbook/alibaba-faces-us-accounting-inquiry.html?searchResultPosition=131

Accounting issues being discovered before a huge IPO is discouraging. And, doesn’t Alibaba’s “lacking expertise in many of the new businesses” indicate deals being made for the sake of making a deal? Is due diligence lacking all around? Do they always do their due diligence *after* the deal?

A good friend of mine operates a recruiting firm in Shanghai. Her firm only recruits CFOs, largely for companies where western investors insist. According to her, ALL Chinese companies engage in ‘irregular accounting practices’ and many reject the recruited CFOs shortly after they join their new companies. But now it sounds like the Chinese government doesn’t want its economy to fall prey to an MMM-like scandal that befell Russia’s fledgling free-market economy in the ’90s.

Apparently, the punters we have buying stocks will buy anything without reading or understanding the prospectus. While this is disturbing, more information needs to be made available to understand the depth of the problem, and how it should impact investor opinion. There’s a lot of ‘dumb’ money in China, most of which will never make its way back to the investors.

Yeah, that’s all it is. Sound economic policy. Thanks for the laugh this morning, I needed that.

 

SojoüRner

 

 

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21 Responses to “Investors and the Alibaba Leap of Faith”

  • xoxo:

    The exuverance if chinamen is no good for the long term.
    Over-con$umption is just as bad as Under-consumption; MODERATION is a necessary action.

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  • F.Y Ass:

    XOXO, you are an idiot, don’t you know using the word of “chinaman” is a racist term.

    Tech: Not necessary, I think he meant “中国人”, which is fine, no?

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  • F.Y. Ass:

    I am an American Chinese. In US, TV broadcaster using this word has to apologize to the Chinese community. It is a racist word. Please do not use it again.

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  • Ah I see.

    So it is an insult and racist for an American Chinese to be identified as a China Chinese.

    OK, got it. Learn something new today. Thank you.

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  • oxygen:

    @ Sojourner

    BUYING CHINESE STOCKS is betting against Xi JinPing or whoever sits on the emperor’s throne in Beijing communist party. I have bad experience with China Rare Earth (CRE) which supplied 90% of the world’s rare earth minerals – a virtual monopoly.

    Its only other competitor is Lynas Corporation in Australia, supplying most of the residual of 10% market share. But Lynas was expensive in terms of market valuation, so I bought into China Rare Earth listed on the Hong Kong Stock Exchange. I thought I bought into a duopoly controlled mining sector at bargain basement prices.

    FOOL I WAS, I bought into a can of worm of corporate governance.

    Buying Chinese stocks has got BIG GOVERNANCE issue beyond accounting integrity even with securities law applicable in HK and USA, Australia where they may be listed.

    When I bought into CRE, it was cash-rich with a few hundred millions sitting in bank and no debt. There were market talk of tightening rare earth supply as trade tensions mounted between China and the rest of the world.

    Guess what?

    One qtr later, CRE reported balance sheet showed $200 million RMB “disappeared” into thin air. What happened?

    IT DONATED $200 MILLION RMB to unspecified “benevolent causes”!!!

    In other words, money belonging to shareholders can be given away for political causes ( or someone/group itching finger got into the cookie jar???) without shareholder’s approval and then a disclosure made in the balance sheet in qtrly financial?

    The farking CRE share tumbled. I sold too late – after belatedly checking and discovered the “announcement” buried in its much-changed financial position.

    Few months later, it rocketed through the roof!!!

    WITH THAT CANING EXPERIENCE, I have never and will never buy into a China-based entity listed on foreign stock exchange.

    I gather that a lot of Chinese “red chips” on SGX including China Aviation Oil were troubling too for its dumb investors.

    I will buy mining stocks with operations in Africa, Central and South America listed in overseas exchanges BUT NEVER AGAIN CHINESE STOCKS. These are for dumb fools ever ready to be taken on a joy ride to ecstasy of hype, emotional thrill-seeking and witchcraft.

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  • China:

    F.Y Ass:
    XOXO, you are an idiot, don’t you know using the word of “chinaman” is a racist term.

    Tech: Not necessary, I think he meant “中国人”, which is fine, no?

    I propose: PRC Cheese …. to avoid racial discrimination.

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  • uselesstankl:

    India was involved in earlier discussions but withdrew last year over concerns about cheap Chinese goods entering the country.

    PM Lee said that he

    XXXXX

    INDIA IS CONCERNED ABOUT CHEAP CHINESE PRODUCT ENTERING ,

    BUT NOT CONCERNED ABOUT CHEAP INDIAN LABOR ENTERING OTHER COUNTRIES !!!

    NOT COUNTING FAKE DEGREES , CREDENTIALS…

    What the bloody hell does SG exports ?

    Other than, Global foundry, Keppel, ST, SEMCORP, WHAT IS MADE IN SG nowadays ???

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  • oxygen:

    @ Sojourner

    Most of the recent IPOs or aspiring IPOs like Ant Financial of buy-now-pay-later model ARE CASH CONSUMING ENTITIES with draining/weak financial position.

    That is why they desperately need IPOs to survive insolvency risks of massive capital consumption in infrastructure building.

    Caught in between the devil and the deep blue sea of financial crunch of an economic downturn and THEIR OWN CUSTOMERS’ BANKRUPTCY crash, these recent IPOs got only razor-edge sharp survival chances.

    That is why similar construct like AFTERPAY Limited in Australia are high risks bet – their share price is highly volatile.

    Even the founder shareholders sold huge amount of their shares in the tech stock market euphoria

    Sell now, worry later: Afterpay founders cash in on 600% bounce

    https://www.smh.com.au/business/companies/sell-now-worry-later-afterpay-founders-cash-in-on-600pc-bounce-20200707-p559va.html

    They won’t wait for the sky of reality to fall on them.

    Bezos sells more than $3 billion worth of Amazon shares

    https://www.cnbc.com/2020/11/04/bezos-sells-more-than-3-billion-worth-of-amazon-shares-.html

    With the Ant Financial IPO targeting at “escrowing” new shareholders from selling their allotment, IT IS AMBER LIGHT FLASHING – either the economy will crash it or favored parties exit before the sunset over the horizon looming to wipe out gullible greedy peasants.

    I agree with you on this.

    Sojoourner:I’ll not participate in this IPO. Too much risk

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  • uselesstankl:

    https://www.jobstreet.com.sg/en/job-search/environmental-jobs/

    List of environmental jobs in SG.

    Pls check the list and tell me if all are
    ” FILLED ” with FW, and their trash kind….

    With low pay and 24/7 at call !!!

    THIS IS PAP’s JOB BANK TO BE FILLED !!!

    LOW PAY FOR YOU , STUPID LOCALS !!!

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  • uselesstankl:

    Chinaman is racist ???

    INDIAN man ???

    African man ???

    Soon, Americano will also be

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  • oxygen:

    @ Sojourner

    Read this interesting news from the Australian Securities and Investment Commission.

    The Age: One in five users of buy now, pay later apps have been missing payments and going without meals to pay their bills……………The Australian Securities and Investments Commission’s (ASIC) report into the growing industry, released on Monday, said regulatory changes being introduced together with the code of conduct being developed by the industry “provide an opportunity for the industry to address consumer harm.

    Australians forgoing essentials to cover buy now, pay later bills: ASIC

    https://www.theage.com.au/business/companies/australians-forgoing-essentials-to-cover-buy-now-pay-later-bills-asic-20201116-p56ewp.html

    IN LEE-jiapore, the DEBIT CARD has the same harming risks to retirees – FACED WITH TRAPPED CPF RETIREMENT FUNDS, they are short of cash BUT TEMPTED WITH SHOPPING SPENDING of cash-less buy-now-pay-later temptation (WITHOUT THE THREATENING WARNING/ALERT of a visible fast shrinking thickness of the cash-filled otherwise).

    Digital banking will make it worst. New players will need to lend out fast to earn sustaining income lending to marginal customers which traditional banker shy to risk.

    WHAT IS MAS GOING TO DO ABOUT THIS? Look the other way like ASIC and let the devils of debit card wreak havoc too of no money left for fast escalating healthcare costs.?

    Xi JinPing is right – STOP THE ANT FINANCIAL IPOs to save peasants from runaway indebtedness and dumb greedy investors from getting their a*ses burnt.

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  • xoxo:

    @TRe Techie, Uselesstkl

    Thank you both.

    @Fy Ass

    I use the word with no derogatory intention.
    It seems you are greatly perturbed as you deem it to be derogatory and are concerned.
    I can appreciate but i am chinese too.
    The french are sensitive,so too the polite english.
    They are called frenchman and englishman and it is not derogatory?
    It all depends on how we view things.
    We are all proned to miscontruing things.
    I guess you think you are a learned person,mam or woman, but is *ass* not derogatory,sir/madam???
    Thank you.

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  • The Devil in the details.....:

    You have to know accounting. It’s the language of practical business life. It was a very useful thing to deliver to civilization. I’ve heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double entry bookkeeping was a hell of an invention isn’t it?

    Proper accounting should be like engineering. You need a margin of safety. Thank God we don’t design bridges and airplanes the way we do accounting.

    - Charlie Munger

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  • Look more closelyp SIN:

    China has a short spell of democracy under Sun Yat Sun all by themselves without non chinese helps. But self agenda, greed n corruption led to treason n invasion by foreign power top with the Japanese while the whites r waiting hungrily on the sideline again on the pretext of helping them to drive off the Japs. But once again the Chinese did all by themselves despite of high treason from the so called democracy under Ching KS. These r historical. Franky, without Mao China is long gone as a multi split colonies shared by the seemingly kind men trying to free the yolk except that they must change it by theirs!

    What is important in this world is peace n non interference. Treason is a weapon that would wiped out the nation n only benefit the traitors alone who wouldn’t be better off than dogs of the so called liberators. A nation would only be a nation by ridding off their traitors n choose their own political ideology. Now US fears losing their leadership with financial losses attached n not weeping over billions of Chinese under Communism or Taiwan taken over by China. Why US want to supply arms at a extremely hogh cost to Taiwan to wage war ior defence against China. U think US will be banging their chests If Taiwan returns to China willingly or fircibly. N feel very very depressed that Taiwanese. Wiseup, US just feel sorry for themselves to have lost a good source of business in arms!

    Asians should clean their own yards n do the best for themselves. If u do not welcone external interference dont open your big mouth to take side. Calling US protection is like in the old days, the shops n hawkers pay protection moneys to the resident gangs against outside gangs. Why the govt get rid of them to peplace them by people elect government to protect their freedom, equality n justice. if they put themselves or Party aka gang above the nation n her people, what difference have they broght to the people.

    Political parties r no different from gangs of the old times if they violate the Constitution n Laws of the then. Compliant bureaucracy is expansion of power or strictly paying to another gang to protect their power n interests, no differenct from insurance bpractice!

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  • SojoüRner:

    xoxo:
    @TRe Techie, Uselesstkl

    Thank you both.
    @Fy Ass

    I use the word with no derogatory intention.
    It seems you are greatly perturbed as you deem it to be derogatory and are concerned.
    I can appreciate but i am chinese too.
    The french are sensitive,so too the polite english.
    They are called frenchman and englishman and it is not derogatory?
    It all depends on how we view things.
    We are all proned to miscontruing things.
    I guess you think you are a learned person,mam or woman, but is *ass* not derogatory,sir/madam???
    Thank you.

    Whoa there!… bros,

    These differences are not as evident if “meaning” is understood only as abstract conceptualizations of our similar cultural values.
    What it means to be Singaporean and discover one’s own cultural identity.

    @Fy Ass
    We have our own fellow Singaporeans, Dick Lee who calls himself “The Mad Chinaman” a uniquely Singaporean musical treat for all!

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  • oxygen:

    @ The Devil in the details

    BUT BUSINESS IS NOT LIKE ENGINEERING, that is why it can be like accounting.

    Charlie Munger: Proper accounting should be like engineering. You need a margin of safety. Thank God we don’t design bridges and airplanes the way we do accounting.

    So Charlie Munger is DEAD WRONG – in this simple example which is VERY COMMON in mining industry.

    New York Times : The Royal Dutch/Shell Group said today that it would pay a total of $150 million in fines to the U.S. Securities and Exchange Commission and its British counterpart, the Financial Services Authority, following investigations into the company’s overstatement of its oil and gas reserves this year.

    The announcement alleviates some of the pressure on the world’s third largest oil company, which has been the subject of intense criticism and scrutiny from investors and regulators since January, when executives made the first of four restatements to the companies oil and gas reserves. Ultimately, Shell has shaved 4.47 billion barrels, or 22 percent, from these estimates.

    Shell to Pay $150 Million in Fines for Overstating Reserves

    https://www.nytimes.com/2004/07/29/business/worldbusiness/shell-to-pay-150-million-in-fines-for-overstating.html#:~:text=LONDON%2C%20July%2029%20%E2%80%94,and%20gas%20reserves%20this%20year.

    The engineering over-estimation by Shell is worth a few hundred billions of dollars in over-statement and investors paid TWICE for “Charlie Munger’s false confidence” in engineering quantification.

    - first by paying over-valuation of shares in Shell and

    - secondly, by Shell further loss in financial terms of asset depletion of fines paid to the securities watchdog of $150 million.

    It was likely that shareholders, then, got a dividend cut as well to restore its balance sheet.

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  • oxygen:

    @ The Devil in the detail.

    Ooops, typo error, sorry, the paragraph below

    oxygen: BUT BUSINESS IS NOT LIKE ENGINEERING, that is why it can be like accounting.

    Should be correctly read as

    oxygen: BUT BUSINESS IS NOT LIKE ENGINEERING, that is why it CAN’T be like accounting.

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  • oxygen:

    @ The Devil in the detail.

    THIS IS CORRECT of generality of assumption – the details matter even decisive.

    Here is a POSITIVE OPTIMISTIC announcement from Estrella Resources (ESR) on 4th of November BUT THE MARKET SWING THE OPPOSITE DIRECTION of a haircut from opening bell on ESR’s announcement to the Australian Stock Exhange.

    Assays confirm significant high-grade Magmatic Nickel Sulphide Dicovery.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02304533-6A1005655?access_token=83ff96335c2d45a094df02a206a39ff4

    If you look back at the annual report of ESR, I don’t see a single institutional or substantial shareholder in top 20 listing. That means all its shareholders are RETAIL INVESTORS – unlikely to be geologists or mining engineers.

    Yet they “read” the ESR “strongly positive” (if you read the flattering comments of its CEO, Christopher Daws in the last paragraph of page 2 of this announcement) announcement with EXTREMELY NEGATIVE REACTION.

    So this ESR announcement is meant for retail investor’s consumption read and investment decision-making.

    The MARKET (for ESR is its retail shareholders) is NEVER WRONG – the negative sentiment prevails over positive boast of ESR’s management.

    THERE IS A CLUE or clues contained in that ESR announcement for those without engineering or geologists expertise read and investment appraisal, WHO WANTS TO VOLUNTEER TO TEACH ME where or which is the “teaser” revelation/s of truthful accounting beyond engineering/accounting/geologist/geoscientist quantification?

    Thanks in advance for the opportunity to learn!!

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  • xoxo:

    @SojouRner

    Thank you for your input.

    Cheerio, bro!

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  • Ah Ong:

    Aiyo, you dumb is it? Man from China not Chinaman, then is what Cheebye man?

    Racist? Stop hiding behind this word to twist your ideas around. Come come, chinaman, you dare to go war or not? Or still sick man of the east?

    F.Y. Ass:
    I am an American Chinese. In US, TV broadcaster using this word has to apologize to the Chinese community. It is a racist word. Please do not use it again.

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  • Soccerbetting2:

    Reported on Straits Times :Quote – “Robinsons owes more than 440 creditors nearly $32 million….
    Liquidator KordaMentha will take control of Robinsons’ assets and assess the options to realise value to maximise returns to creditors.ST PHOTO: KEVIN LIM

    Jessie Lim
    PUBLISHED3 HOURS AGO
    FACEBOOKWHATSAPP
    SINGAPORE – More than 440 creditors are owed at least $31.7 million by department store stalwart Robinsons, which is closing down its last two stores here.

    In a notice issued to creditors dated last Friday (Nov 13), provisional liquidator KordaMentha said that an online creditors’ meeting will be called on Nov 26, at 2pm.

    A committee of inspection of not more than five members will be appointed during the meeting, and creditors will receive a statement of the company’s affairs, said the notice which was released publicly by the liquidator on Wednesday.

    Among the 442 creditors listed, as at Oct 29 according to management records, are mattress companies such as Simmons, Sealy, Serta and Tempur.

    Other retailers and businesses named as creditors include cosmetic brands Estee Lauder, Elizabeth Arden and Clarins.

    Home-grown brands such as fashion label Klarra and Ette Tea are also listed…. “Unquote.

    Response :Investors? Another investor Robinson owe creditors money. However it is just $32 millions only. Nothing compared with the billions of that e***b*** woman Olivia Lum company Hyflux owes! However, it is a wonder why that e***b*** woman Olivia Lum still has not gone complete bankrupt after owing creditors billions? The law no need to seize her entire massive hidden wealth and fortune to pay back meh?

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