The Big China Trade: Assessing and Providing an Opinion on China/Alibaba/HK Upside & Downside after the recent recovery.
Discussed Inside: What is the upside/downside ratio for China after the latest reopening optimism.
Note: If you’re new to my Community, please take the time to read my China section Strategy/Research from September up until now for context. As a very important reminder, this is done for educational purposes and is a reflection of my personal journal only.
This China piece is deliberately written ahead of our Bi-Weekly report given that China/HK markets have advanced so quickly. If you have exposure in China, this is a key read. I expect my upcoming Bi-Weekly section on China to be briefer given that this research is released in advance.
This strategy piece will also be simultaneously posted in my Patreon Community.
Members & Friends -
I will provide an ahead-of-schedule update of my China opinion and research of the latest advance in US ADRs, HK-Listed Markets, and Onshore markets.
Let’s first do a recap.
We reached peak fear and capitulation right after 20th Party Congress when media outlets around the world promoted the narrative that Xi Jinping’s Politburo Standing Committee (the Key 7 Men in China) included “yes men” that would centralize his power and allow him greater control. As a result, fear overtook the market and the Hang Seng was sold all the way down to the 14,000 region and traded at valuations that it hadn’t seen in nearly 20 years.
To celebrate China’s rebound, I am opening up my premium mid-October Research for my public friends to read and download here (where you will see my actionable research playing out in full pride). China research starts on Page 14. This research piece captures my state of my and thinking on October 15th. This is same report where I discussed the potential of TCOM at 23.5 (now 33) and how I had made it my largest China position - ahead of BABA, KWEB, and TCTZF.
Fast forward to the November timeframe, and we have seen the Central Planning Committee start to assert a more aggressive timeline on China’s reopening. Whether this was done in response to the protests is not a subject I will touch upon, but it is safe to say that the government noticed this movement and has done its best to mollify their citizens.
Since the reopening developments across China where they have highlighted a “10-Point Plan” to optimize the Covid response, markets have responded very favorably and both foreign and onshore China traders have bid up the China internet sector by nearly 50% from the lows.
I got a lot of heat when I discussed China at the lows, but my valuation work and my macro research seriously suggested that we had rather favorable risk/reward when BABA traded 60-75 and KWEB traded the 20 handle.
Ultimately, not only was it the right thing to do, but my work has rewarded hundreds of investors who followed my researched methodology during times of chaos and disorder. I will continue to standby incredibly well-thought out research and have a very fine-tuned orientation towards risk/reward even if it means I must be slightly contrarian when appropriate.
In this note, I will discuss my thinking on current levels, and how I view risk/reward now - using the same framework that told me China was undervalued just 45 days ago.
Is it now? Read on to find out.