Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Is Alibaba A Buy? Berkshire's Charlie Munger Thinks It Is

By Andy HechtStock MarketsNov 09, 2021 05:43AM ET
www.investing.com/analysis/is-alibaba-a-buy-berkshires-charlie-munger-thinks-it-is-200607756
Is Alibaba A Buy? Berkshire's Charlie Munger Thinks It Is
By Andy Hecht   |  Nov 09, 2021 05:43AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

This article was written exclusively for Investing.com

  • Warren Buffett’s partner Charlie Munger loads up on BABA
  • China’s collective wealth initiative put a sock in the founder’s mouth
  • Investors have shunned Chinese stocks
  • Value seekers now nibbling on China shares as US stock market is expensive
  • Risks remain high as China has been aggressive

The path of least resistance for the US stock market has been a pattern of higher lows and higher highs since the pandemic-inspired correction during February and March 2020. Indeed, over recent months, all of the leading US stock market indices have reached new all-time highs.

One powerful force pushing equities higher: TINA, the feeling there is no alternative to stocks for investors. Historically low interest rates, rising corporate profits, and a bullish trend have encouraged investors to keep buying shares. Tax-deferred accounts continue to create natural buying in the equity arena.

With US stocks at record highs, it's more than a challenge to identify value. Fundamental value-seeking investors are faced with stock prices that require considerable earnings growth to maintain their upward trajectory.

Meanwhile, Chinese stocks have not tracked US shares. While the SPDR® S&P 500 ETF (NYSE:SPY) was over 25% higher in 2021, as of Nov. 8, the exchange traded fund reflecting the fifty leading Chinese stocks that trade on US exchanges, the iShares China Large-Cap ETF (NYSE:FXI), was approximately 14.7% lower.

Alibaba Group Holdings (NYSE:BABA), the China-based internet retail giant, is one of the leading stocks in the FXI portfolio. BABA shares had declined by more than 30% since the end of 2020 as of Nov. 8. Some investors believe that BABA is a company that offers compelling value in the current environment.

Warren Buffett’s partner Charlie Munger loads up on BABA

At ninety-seven years old, Charlie Munger, Vice Chairman of Berkshire Hathaway (NYSE:BRKa), as well as CEO Warren Buffett’s sidekick, is still going strong. In early October, the value investor made an interesting choice when he decided to double down on his firm’s investment in Alibaba, one of China’s most closely followed stocks.

In a regulatory filing, Munger’s newspaper publishing company and investment firm Daily Journal revealed it boosted its long position in BABA by over 80% during the third quarter of 2021, to more than 302,000 shares. Which is particularly interesting given the stock's performance in 2021 has been nothing short of awful.

BABA Daily
BABA Daily

Source, all charts: Barchart

The chart shows BABA shares finished 2020 at $232.73 and were trading below the $161 level on Nov. 8. The stock reached a new low for 2021 of $139.63 on Oct. 4 when news of Munger’s buying hit the market. The shares rallied to a high of $182.09 on Oct. 20 but ran out of upside steam after the market digested the Munger purchase.

Yet Charlie Munger sees value in BABA and other Chinese shares. 

China’s collective wealth initiative put a sock in the founder’s mouth

Munger is never shy about sharing his opinions, even when they're highly controversial. Over the past year, the Chinese government cracked down on financial superstar Jack Ma, Alibaba Group's co-founder, to minimize individual wealth over the “collective wealth” sought by President Xi.

China has room for only one superstar, President Xi, who has consolidated his power and control over the country’s 1.4 billion citizens.

Charlie Munger said, “Communists did the right thing.” While he did not advocate for "all of the Chinese system” in the US, he “certainly would like to have the financial part of it in my own country.” His buying of BABA caused a sudden recovery in many of the leading Chinese stocks that had been under pressure over the past year. 

Investors have shunned Chinese stocks

The FXI ETF holds a portfolio of the leading Chinese companies that trade on the US stock market, including BABA. After falling to a low in tandem with markets across all asset classes in March 2020, Chinese stocks recovered.

FXI Daily
FXI Daily

The chart highlights the move from $33.10 on Mar. 19, 2020, to a high of $54.52 on Feb. 17, 2020. While US stocks continued to rally, making new highs from February through early November 2021, the FXI ETF ran out of upside steam and was back below the $40 level on Nov. 8. FXI is now closer to the March 2020 low than the February 2021 high.

President Xi’s “collective wealth,” tensions with the US and Europe, and a slowdown in China’s economy have weighed on Chinese stocks. 

Value seekers now nibbling on China shares as US stock market is expensive

It is more than challenging to find value when it comes to the US stock market.

SPX Daily
SPX Daily

The chart of the S&P 500 index shows the rise from a low of 2,191.86 on Mar. 23, 2020, to the 4,700 level on Nov. 8. The index has reached many new all-time highs in 2021.

Meanwhile, the all-time high in Chinese stocks remains elusive.

FXI Monthly
FXI Monthly

The long-term chart shows that FXI reached its record high in 2007 at $73.19 per share. At below $40, value investors like Charlie Munger believe the potential rewards justify the political risks of investing in Chinese companies these days. 

Risks remain high as China has been aggressive

Risk is always a function of potential rewards in any market. There can be no doubt that while Munger is doubling down on his BABA investment, the Chinese government is doubling down on its aggressive stance towards the US and Europe.

Tensions surrounding Taiwan and expansion in the South China sea are issues on the geopolitical landscape. “Collective” versus individual accomplishments is an ideology that separates the Chinese system from the “free” world.

Still, Charlie Munger and a growing number of investors are looking east towards China since shares of the leading Sino companies offer compelling value versus US stocks.  

Is Alibaba A Buy? Berkshire's Charlie Munger Thinks It Is
 

Related Articles

Thomas Hughes
Beware The Rebound In Retail Stocks By Thomas Hughes - May 27, 2022

The S&P Retail ETF (NYSE:XRT) is rebounding, but we don’t think investors should cheer too loudly. The move is driven by the combination of oversold markets and mixed...

Jea Yu
Affirm Stock Has Affirmed A Bottom By Jea Yu  - May 27, 2022 1

Buy now and pay later purchase financing provider Affirm Holdings (NASDAQ:AFRM) stock is rebounding after bottoming out at $13.64. The buy-now-pay-later (BNPL) platform had a very...

Is Alibaba A Buy? Berkshire's Charlie Munger Thinks It Is

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
Jim German
Jim German Nov 10, 2021 9:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You mean feb 2021 HIGH. Proofvreading is important.
Mohd Izhar Muslim
Mohd Izhar Muslim Nov 09, 2021 4:33PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Greatest never be lost in action, specialist ups for great features 👍
Muhammad usman Muhammad Usman
Muhammad usman Muhammad Usman Nov 09, 2021 4:33PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yes
Shane Zhang
Shane Zhang Nov 09, 2021 12:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Well you need to have risk management plan
Jon Jones
Jon Jones Nov 09, 2021 12:05PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
although it don't make sense as far as stocks are concern but i see weekly inverse HnS on BABA stocks its time to fly
Fuad Hesenov
Fuad Hesenov Nov 09, 2021 11:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yes
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email