Alibaba, a diversified technology company based in China, has been a key stock holding for us this year in Global Equity Funds. While originally known for its e-commerce platform, the company has significantly expanded into cloud computing, digital payments, and more.
Alibaba operates major e-commerce platforms, including Taobao (consumer-to-consumer), T-Mall (business-to-consumer), and AliExpress (a global marketplace for manufacturers). Its cloud computing arm, AliCloud, is among the largest globally and dominates the Chinese market. We believe it is well-positioned to benefit from the rapid development of artificial intelligence, supported by its cloud infrastructure and AI investments.
As China continues to navigate global trade issues, a decelerating GDP and market volatility, the country's economic landscape is evolving, with renewed government focus on domestic consumption and technological self-sufficiency. This has been seen with recent policy support which gave an initial boost to the economy – although this fizzled out as markets await further information on this support. While uncertainty remains, the focus from the government is clear that it intends to support its domestic market. Alibaba offers global investors broad exposure to these macroeconomic trends, while trading at a discount relative to its historical valuation. The company boasts a strong balance sheet, with nearly 40% of its market cap held in cash and a current PE ratio of approximately 12x.
In addition, Alibaba continues to enhance shareholder value. In Q2 2024, the company repurchased 630 million shares, amounting to $5.8 billion, reducing total shares outstanding by 2.3%. Management remains focused on improving profitability, projecting that loss-making segments will reach breakeven in the next 1-2 years.
Given these factors, we believe Alibaba is well-positioned for long-term growth and offers significant potential for investors looking to gain exposure to the Chinese economy.
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