The bullish case for Alibaba, Standard Chartered and Sony
Sony is the most dramatic turnaround story in Japan, up 25 per cent in 2017 alone.
Dubai - Twenty years after Asian flu, Pacific Basin boasts some of world's great emerging growth and restructuring firms
The summer of 1997 is indelibly imprinted in my memory. I ran the global equities proprietary trading book for an Abu Dhabi bank when the Thai baht devalued, South Korea went cap in hand for a $57 billion IMF loan, Indonesia's banks collapsed like dominoes, anti-China riots erupted in Java and the 34-year-old military dictatorship of President Suharto went belly-up. The saddest event that summer was not the Asian flu but the tragic accident under the Pont de l'Alma that claimed the life of exquisite Lady Diana Spencer, the People's Princess. This was the summer of Tony Blair, Hong Kong's handover, the Spice Girls (yo, tell me what you want, what you really, really want!), the Amazon IPO and my first deal hunting trip to Silicon Valley. Twenty years after the Asian flu, the Pacific Basin boasts some of the world's great emerging growth and restructuring companies. I profile three Asian megacaps in this column.
Alibaba's e-commerce ecosystem will make it Asia's future public cloud colossus, online retailing aggregator and financial payments infrastructure leader. A valuation of 28 times forward earnings is not expensive for a firm that could well grow its revenues by 40 per cent per annum in the next three years. The human brain is not programmed to process the mathematics of exponential growth curve. This is a skill I had to learn the hard way, after multiple heartbreak (like selling Amazon after doubling my money in the IPO as I thought it was too "expensive"!) investing in technology shares. I should have heeded Warrant Buffet's wise words. The big money is made not by market timing but time in the market.
So I will keep my faith in Alibaba and re-enter the shares if they fall to 126-130. This can also be achieved with an option strategy on the Chicago Board Option Exchange. Alibaba ADRs are correlated to higher US Treasury bond yields and even to a potential credit crunch in the Shanghai money market. However, the secular growth of e-commerce in China and Asia is unquestionable. Taobao, Alipay, Ant Financial, Ali Cloud, Infinity, etc, are some of the most priceless online brands and ecosystems in the world. Jack Ma's corporate governance is a bit iffy but "Open Sesame" is my take on Alibaba!
I have recommended investors accumulate Standard Chartered Bank at 450 pence in London multiple times in this column since the big money is made when things go from Godawful to plain awful! Standard Chartered was the most mismanaged UK bank in Asia under its previous management, now ousted by Temasek, Singapore's sovereign wealth fund and a largest strategic shareholder in the bank. Bill Winters, an old JPMorgan and Wharton alum, has been unable to turn around the bank after posting a mere 0.4 per cent return on equity, thanks to untold billions in losses lending to Indian mining magnets and corrupt oligarchs, Singapore energy/commodities traders, declines in Asian/world trade and a failed foray in to capital markets. Standard Chartered has returned to its pre-McKinsey roots as a British colonial (muddle through, old chaps!) trade finance and consumer banking franchise in Asia, Africa and the Middle East.
This is Asia's Cinderella global bank at 74 Hong Kong dollars. Capital ratios, cost-cutting, a trade upturn, consumer banking gains in Hong Kong and Singapore and a rise in Treasury profits (steeper US yield curve) all tell me there is 20 per cent more upside in the bank on which, like the British empire, the sun not only finally set - but went into a permanent eclipse!
Sony is the most dramatic turnaround story in the Empire of the Rising Sun, up 25 per cent in 2017 alone. Sony has raised revenue/EPS growth and margin guidance across all its major divisions except components. There is a new management team at Sony Pictures. The videogame business is a global growth engine, the reason Activision and Nintendo trade at 28 times earnings, a huge premium to Sony's 16 times forward multiple. Car sensors/dual cameras generate six times the revenue of smartphone cameras. Sony will exit marginal/consumer electronics businesses outside Japan. Normalised operating profits in the semiconductor division have electrified Marunouchi. I can envisage Sony's New York ADR trading in a 34-45 range in 2017. Sony thrilled me with the Walkman in the 1980s and thrilled my twin, with the PlayStation a decade ago. Now Sony's share price thrills me as it has risen 25 per cent in 2017 alone!
The writer is a global equities strategist and fund manager. He can be contacted at firstname.lastname@example.org.