Prior to Evergrande’s debt crisis, investors in Chinese companies were dealing with another major headwind. It’s a government regulation.
This is an exercise to show who is wearing pants in China. The government there tells the company, “You run because we allow you to run.”
What does this mean for the two largest companies in China trading on the US stock exchange?
Research analysts Matt Clark and I delve into the situation to see what the future holds for the two major Chinese corporations. Tencent Holdings Ltd. (OTC: TCEHY). When Alibaba Group Holding Limited (NYSE: Baba).
Look at it this week Investing with Charles Less than.
Here are some highlights from our conversation.
2 Chinese Stock Giants
mat: The Chinese government has pursued cryptocurrencies. They have been pursuing Big Tech. They even pursued a little skill. They attacked everyone on the Chinese border, except for moms and pop retailers.
And that includes the two companies we’re talking about today.
The first Tencent is a well-known holding company with online advertising, fintech, business services, and several other segments.
The other is billed as Amazon in China: Alibaba. It is mainly known as a very large market. In fact, it is the largest online marketplace in China.
Charles: It’s essentially a hybrid of eBay and Amazon.
Interestingly, people tend to think of Chinese tech giants in terms of American tech giants they are similar to, and there is no very good comparison between these. They are clearly Chinese and have distinct characteristics of their domestic market. It is not fair to them to compare them with Western companies. They do everything.
These two companies that is The Chinese economy at this point.
mat: They are very diverse. Companies here in the United States tend to put all their eggs in one, perhaps two or three baskets. These companies are spread across a wide range of disciplines. So first, please tell us your views on both of these companies.
Rapid growth in a huge market
Charles: I like both.
Now you have to ask that question: “Am I catching a falling knife now?” Both of these strains have plummeted all year round, especially over the past few months.
Tencent stock struggle
BABA tries to turn around
Charles: Looking at what makes them attractive, it’s the same story on both sides. Despite being huge, both are still very, very, very fast growing companies.
Alibaba has a market capitalization of around $ 400 billion, giving or taking tens of billions of dollars. Tencent is about $ 600 billion.
If there were two companies outside the United States that had achieved that trillion dollar market capitalization and had the potential to enter the elite company with Apple and Microsoft around the world, they would be these two. These two are big enough to justify that kind of market capitalization.
So they are high growth. They are very large and are actually negative in some respects. You know drills, we prefer small companies, everything else is the same. But in an era when technology creates a natural monopoly, its size and range aren’t too bad.
These guys are the same as Google, Facebook, Amazon, etc … they are a natural monopoly. They have not won government fiat money or special treatment monopolies. They won it because it became the de facto platform for what they were doing. Therefore, all of them are very attractive stocks to own.
Disadvantages of BABA and TCEHY
Charles: So what are the drawbacks here? Neither is cheap at this time. Both are expensive stocks based on earnings, sales and other factors.
But that also applies to tech companies. Investors pay for growth, so technology is generally expensive.
Volatility has increased a bit lately. Volatility is not necessarily bad. No one cares about volatility when stocks are going straight, but the downside volatility is not fun. Therefore, these are expensive stocks that have had fairly large downside volatility these days.
Crackdown on these Chinese stocks and the future
mat: What stands out here is that recently there was a general view that the crackdown from the Chinese government was overkill. It was a bit too harsh, and it actually started pushing both of these stocks higher.
The Chinese government has never really come back and says what they did was wrong.
But here is some conventional knowledge that suggests that it is probably the case.
Another thing is that neither of these companies intends to make a major intrusion into the United States. Neither of these companies intends to build a foothold in their respective industries here in the United States. Their power is abroad. Their power serves not only China, the world’s largest retail population, but also all other countries in the Pacific, Eastern Europe and West Asia.
Charles: China’s regional trading partner.
mat: Here, companies such as Tencent and Alibaba expand their growth potential. Not in North America. I’m not saying it will be in Western Europe. It will be in East, China, and Asia.
Charles: Given the relationship between the West and China, it is absolutely unlikely that Chinese tech companies will have a significant presence in the West. Currently, there is too much distrust. However, the growth of China itself and other trading partners other than the West is essentially unlimited at this time.
Both of these stocks are trading at the levels first seen in late 2017-early 2018. Last year’s sale wiped out three years of profit.
mat: Another point to note is that both of these companies are big tech companies, but they are not the subject of a parliamentary war against big tech as seen in the United States. They have to negotiate with the Chinese government. We’ve already seen what the Chinese government does, but now it’s possible that they’re loosening those regulations. We still don’t know what Congress will do with Big Tech.
If you want to know which of these stocks you like better as a long-term holding, take a look at the rest Investing with Charles here..
Where to find us
The mat that will appear this week is Bull & Bear It’s a podcast, so stay tuned.
Don’t forget to check us Ask Adam anything A video series where Chief Investment Strategist Adam O’Dell answers your questions.
You can also catch the mat every week The latest information on the marijuana market.. If you’re interested in cannabis investing, you don’t want to miss Matt’s weekly insights.
Remember, you can email me with my team Feedback @ moneyandmarkets.com — Or leave a comment on YouTube. We love to hear from you!May feature your questions and comments in future editions of Investing with Charles..
For safe benefit
Charles Size More
Co-editor, Green Zone Fortune
Charles Size More Is a co-editor of Green Zone Fortune Specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
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