A quick set of thoughts today on Alibaba. I’ve been reading Catherine Belton’s superb book Putin’s People which is a forensic account of how we all collectively got Russia wrong at the start of this century. The key event speaks to the outcome that echoes throughout the book: the defenestration of Mikhail Borisovich Khodorkovsky and the confiscation of his assets notably the oil company Yukos. Before this event, one could still believe that Russia was heading down a market democracy route after this event what was revealed was that the ex KGB types were determined to install state control of the commanding heights of the capitalist economy – to fund state power and to fund their own corruption.

China could be at a similar moment with Alibaba. Jack Ma has evidently pissed a great many bureaucrats off but one can hear an echo of the Putin U-turn and in the particular sense that the political elite has decided that no business man can be more powerful than the party. Of course, China won’t play out in the same way as China and I suspect the endemic, high-level corruption MIGHT not be as bad in China. Certainly, the CCP seems rather more keen on using market dynamics to build a competitive ‘dual circulation’ economy. Then again the message from Belton’s book is that throughout the first half of the first decade of this century Putin was vocal in his encouragement of western capital – on Russian terms.

At the moment the focus seems to be on regulatory capture and control but over the last few days, I have been hearing more and more rumors about an effective nationalization of Alibaba, in part because it is too systematically important. Some of these rumors have even surfaced in fairly unorthodox places – see here: https://www.globalsecurity.org/wmd/library/news/china/2020/china-201225-rfa02.htm

I can imagine a scenario where Alibaba is perhaps split up – as Khodorkovsky’s empire was – which would in effect mean a back door nationalization. I’m sure the impact of such an event would be cataclysmic which is why I don’t think nationalization is on the cards but then again we used to say that about Yukos and look what happened there.

An alternative scenario is also possible – Alibaba becomes over-regulated and starts to lose some of its vim. Investors also worry about political interference and the stock goes a bit ex growth.

I’ve mentioned the excellent Chinese Tech VC blog Chinese Characteristics blog before and yesterday she had an excellent bearish analysis on Alibaba’s growth potential. You can read it here . It follows on from a more bullish account at another blog HERE 

Lilian’s conclusion is as follows: ” Now that Ant will be reined in by regulation and their new growth seeds (Cainiao and Cloud) are gestating, where is Alibaba’s next engine of growth going to come from? I think Alibaba has created an incredible data moat with its ecosystem for the record, and I don’t think a fall will be swift. But I see it more as a value investment with a robust financial profile than a growth stock.”

Investors in Scottish Mortgage and Manchester &London take note!