Things move awfully slowly and incredibly quickly. in China.
First up, the now Jack Ma-less Alibaba Group (HKG:9988), (NYSE:BABA) has had its wings thoroughly clipped after years in the wilderness but it’s taken a week or so for it to emerge from a whole pack of clipped but released Chinese tech plays and is the clear go-to for most of the major US investment houses.
But this Chinese reopening narrative is not straightforward. It’s just not meshing quite yet and the script still needs work.
They’ve been lining up to get a piece of Jack Ma’s old toy, but you know it’s on when Goldman Sachs adds a Chinese name to its gold standard conviction list which happened almost immediately following Ma’s final corporate castration.
Among a choice list of likely to be revived Chinese internet platform mega-caps, Goldman says Alibaba enjoys the “largest room for valuation multiple repair”.
Regardless, apparently, of what’s really happening on the virus front.
According to one state official this week, some 80% of China’s population has already had COVID-19, that’s the top health expert, trotted out to explain how good things are.
Of course, considering the mortality rate of the virus (circa 1/1000) and China’s population (1.5bn, top heavy with the unvaccinated and elderly) even a dullard with a calculator like me knows we’re looking at a number between one and one and a half million.
Box office economics
That’s why the little things in the domestic economic engine probably aren’t moving like they did.
Marvel Studios will have been chuffed to announce overnight that “Black Panther: Wakanda Forever” and “Ant-Man: Quantumania” will be released inside China next month — the first Marvel movies since 2019 to be allowed into Chinese cinemas.
Perhaps that’s because action at the mainland’s box office was about the same as what was on the screens – not spectacular – and despite this being the first come-as-you-are cinema season since China snapped its coronavirus curbs.
China’s mobile middle class like their movies. And while a tedious season limits the applicability of the numbers as an accurate indicator, box office receipts still tell a story.
Just a day earlier ticket sales reportedly lingered around the 1.3bn yuan mark as the Lunar New Year holiday got underway. This was a disappointment for cinema goers and owners alike, coming in under were lower the mage Lunar New Year holiday from both 2021 and 2022.
As of Tuesday, the fourth day of the week-long holiday, Xinhua suddenly got busy and declared China’s box office revenue for the holiday exceeded 3 billion yuan (which is circa US$440m).
“A strong signal that the country’s cultural and tourism industry will see a robust recovery this spring,” Xinhua added – in turn, a strong signal that’s not what’s happening.
Proof pudding by April or May
Man GLG Asia Opportunities Fund portfolio manager Andrew Swan says we’ll all find out soon enough just which way China is will itself emerge from its post zero-COVID universe.
“I would say in the next month we’ll start to get a sense of whether this is a strong, broad recovery or a narrow, shallow recovery,” Swan says.
“A broad, strong recovery will have implications for the rest of the world, in particular commodity prices… But if it’s a narrow, shallow recovery, there probably won’t be any impact on the rest of the world, apart from more Chinese tourism.”
At least Andrew says his team is seeing “very, very strong forward indications” on both domestic and international travel.
“We do believe the Chinese economy will recover but we are more in the narrow, shallow recovery camp than the broad, strong recovery camp,” Swan added.
There’s two ways this could go
The Hang Seng Tech Index, which comprises the 30 largest tech companies listed in Hong Kong, is up 7.4% from early in December when the chains began to fall off Beijing’s ill-conceived and madly executed zero COVID-19 policy.
Fact remains, there’s a big hole in the real estate sector, an ageing population, a silent trade war with America and many of its allies, and the uncertainty of war and what’s next following President Xi Jinping’s punitive regulatory tech smackdown that began almost 2 years ago
Andrew Swan says the wave of domestic spend which most expect to kindle the world’s second largest economy back to life is not necessarily in the post.
“If you look at what has built up in terms of household savings, it’s all gone into long-term term deposits. Normally if you’re making that decision, you’re locking your money up, you’re not really thinking you’re about to spend it anytime soon.”
Meanwhile in New York
Morgan Stanley: It’s a big Ali-buy
Oh, and Morgan Stanley this month put a price target on BABA’s head of US$150, get out at US$200, if the bulls are really moving.