The anti-monopoly strictures Beijing has imposed this year on China's e-commerce giants looks set to unleash a new spasm of competition — a potential gift for the growing ranks of institutional investors looking now to boost their exposure to the fast-growing mainland market.
In the wake of stricter regulatory guidance and fines for anti-competitive behavior, including a record $2.8 billion levied in April on Hangzhou-based Alibaba Group Holding Ltd., executives of the country's top e-commerce players have been singing from the same hymnbook about ratcheting up investment outlays. Alibaba chairman and CEO Daniel Yong Zhang, in a May 13 briefing on the company's March 31 results, took the lead, pledging to invest "all of our incremental profits" this year into core strategic areas.
Analysts and money managers see a trend that could weigh on earnings margins for the coming year or so — by design, some contend — while delivering longer-term payoffs.
The typical response when companies in China find themselves in the regulatory spotlight is to lay low; with anti-monopoly concerns now, laying low means not delivering astonishing profits, said David Choa, Hong Kong-based head of Greater China equities with BNP Paribas Asset Management Asia Ltd.
That may explain why, on the latest round of earnings calls, executives of China's e-commerce heavyweights effectively said they're "going to reinvest every bit of their earnings" this year — and possibly next year as well — in research and development or capital expendi- tures, said Mr. Choa, who is lead portfolio manager for his company's flagship $2.5 billion BNP Paribas China Equity Fund.
Money managers say widely held stocks like Alibaba — down roughly 30% from November after Beijing, reportedly angry after Alibaba founder Jack Ma critiqued China's regulatory approach as outdated, quashed a record IPO planned by the firm's Ant Group fintech arm — are already on bargain hunters' radar screens.
Other e-commerce stocks giving back some of their hefty coronavirus-driven gains this year include Shenzhen-based online games giant Tencent Holdings Ltd., down 23% from its Feb. 18 intraday high following a 51% jump the year before, and Beijing-based online food delivery heavyweight Meituan, off 42% from its Feb. 18 intraday high after a 182% surge for 2020.