China was a difficult sale last year. The stock markets popped up when investors avoided the high-flying technology shares of the nation in 2018. But this situation is changing rapidly this year and the Chinese stocks have just finished their best first two months of the year since the global financial crisis
Among the beaten technical stocks, Alibaba (NYSE :), China's e-commerce giant, has so far increased 35%, while its biggest competitor JD.Com (NASDAQ 🙂 accelerated nearly 38% in the same period.
The rebound follows a painful year in which Alibaba lost a quarter and JD.com lost almost half its value after the Chinese economy hit a slow blow and the prospects of a devastating trade war with the US undermined investor confidence.
Recent developments at the macro level show that investor pessimism about the world's second largest economy has gone too far. The US and China are reportedly coming closer to a trade deal that could already be finalized this month, according to the Wall Street Journal
On the domestic side, China yesterday announced a number of measures to stimulate economic growth, including new tax cuts and financial incentives for businesses, and to provide a helping hand to small and private companies.
Alibaba shows strong profit growth
But the big question for long-term investors is whether this is another bubble created purely on optimism, or whether it is the right time to become serious about the shares of the nation again.
In our view, a safer gamble to play China in this uncertain environment is to stick to the solid names and avoid smaller players who still have a sustained path to growth. For that reason we love Alibaba, the Chinese equivalent of Amazon.com (NASDAQ :), more than any other technology range.
Alibaba, whose marketplaces connect Taobao and Tmall traders to Chinese consumers, showed in its 30-year report for the third quarter that despite the economic slowdown and uncertainties of the past year it remains on schedule.
The turnover of Alibaba's core trading platform rose by 40% in the third quarter compared to the same period a year ago. The cloud computing segment generated a 84% higher turnover, and its innovation initiatives rose by 73% during this period, which signaled the success of the company's efforts to diversify its operations
The last quarter was the tenth consecutive time that Alibaba achieved better sales growth than JD.com, allowing the company to keep the competition under control. In the future, Alibaba has a much better chance to grow and diversify. The company has invested heavily in expanding its cloud computing activities by opening new data centers in Europe, the Middle East, South Asia, Southeast Asia and the Chinese domestic market
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The latest economic measures taken by China to stimulate domestic growth is another reason that makes us more optimistic about Alibaba. China plans to increase spending by 2 trillion, or 2% of the $ 13 trillion economy, and gives 30% more loans to small businesses. This all predicts good for retail stocks and Alibaba is well positioned to benefit if these measures stimulate consumer spending.
After raising more than 30%, Alibaba shares have recovered many of their losses from the past year. The profits largely reflect the hope of a possible trade agreement between the US and China. This may or may not happen quickly, but Alibaba is a file that you should consider when you are looking for exposure to the largest consumer market in the world.
Bottom Line
The majority of Wall Street analysts have a buy rating on Alibaba, with an average target price of $ 205, which represents an additional 10% upside compared to yesterday's $ 185 closing. That shows only modest upward potential in the short term. But if your investment horizon is long-term, buying Alibaba is still worthwhile, given the company's dominant market position and the ability to capitalize on Chinese growth acceleration plans.
