Markets Apr 12

Charlie Munger’s Daily Journal added Alibaba to his portfolio

Warren Buffett's deputy at Berkshire Hathaway appears to have made a healthy gain after buying 165,000 shares in the Chinese tech giant while the price was down in recent months; HK shares of Alibaba jumped 9% today

Charlie Munger’s Daily Journal added Alibaba to his portfolio
Vice Chairman of Berkshire Hathaway, Charlie Munger attends the annual Berkshire shareholders meeting in Omaha, Nebraska, on May 3 in 2019. Photo: Johannes Eisele / AFP.

(ATF) Daily Journal Corp, which has counted Charlie Munger as its chairman since 1977, added Alibaba to its stock portfolio in the first quarter after the market capitalisation of the Chinese e-commerce mammoth had plunged almost 30% since late October.

While US-listed Chinese companies face delisting risks after Washington passed new rules to require Chinese firms to open their books and disclose government links, analysts said Munger’s move showed his confidence in Alibaba’s long-term performance as well as China’s economic growth.

A quarterly report by Daily Journal with the US Securities and Exchange Commission (SEC) last week showed that the newspaper publisher and software developer bought 165,320 shares in Alibaba. 

Its stake was worth $37.5 million at the end of March, making Alibaba its third-biggest position after Bank of America and Wells Fargo. The holding made up 19% of its $197 million portfolio, which contains only five stocks.

Munger, Warren Buffett's business partner and the vice-chairman of Berkshire Hathaway, has bet on Chinese companies before.

He brought BYD to Buffett's attention, which led to Berkshire plowing about $230 million into the electric-vehicle company in 2008. Its stake is worth over $5 billion today.

The Alibaba position is notable because Munger blasted the company's founder for criticising the Chinese government during the Daily Journal annual meeting in February.

"Jack Ma was very arrogant to be telling the Chinese government how dumb they were and how stupid their policies were and so forth," Munger said. "Considering their system, that is not what he should have been doing."

Following Jack Ma’s infamous speech criticising the “pawnshop mentality” of Chinese banking officials at a forum in Shanghai, Chinese regulators pulled the plug on the IPO of Alibaba affiliate Ant Group in early November, which was expected to be the world’s biggest and set to raise about $37 billion.

Regulators introduced new micro-lending rules that would significantly affect Ant’s profitability, allegedly because of concern over the growth of online lending and its capacity to destabilise China's financial system, which was hit hard by the coronavirus and has left the country's banks swamped with bad loans.

Anti-monopoly campaign

Beijing also launched an anti-monopoly campaign targeted at the country’s tech giants, which were accused of taking jobs away in an economic downturn and infringing on consumer rights through unfair competition.

Amid Beijing’s anti-monopoly campaign and talk of delisting risks in the US, Alibaba’s American depositary shares plummeted from $317.10 in late October to a closing price of $223.31 last Friday, down 28%. Its Hong Kong-listed shares decreased by 29% over the same period.

It is unknown when exactly Daily Journal purchased the Alibaba shares, but market observers said the company might have deemed it a good opportunity to “bargain hunt”.

Despite China’s crackdown on tech giants, Jackson Wong, asset management director from Amber Hill Capital Ltd Hong Kong, said Alibaba and Tencent are still China’s top-notch tech firms and their positions are unshakeable.

Analysts from China International Capital Corp are also upbeat about Alibaba’s business prospects, and expect the company to remain a market leader in the long run.

“Alibaba is undervalued by the market. Our price target for the company is $311 for the US-listed ADS… There is 37% of room for a price increase,” they said.

In the fourth quarter of 2020, Alibaba outperformed analysts’ forecasts by recording a 24% increase in operating profit, which was 49 billion yuan ($7.5 billion).

On Sunday, China's major markets regulator announced that it had fined Alibaba Group about $2.8 billion for abusing its market dominance, but the Hong Kong-listed shares of the e-commerce giant rose as much as 9% in Hong Kong on Monday. 

Analysts said the worst was likely to have passed for Alibaba in terms of regulatory penalties. 

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China business Alibaba share stake Charlie Munger Berkshire Hathaway Regulatory woes Big fine Shares jump