The internet is awash with images of people doing crazy things. The internet also seems to make people do crazy things, in particular investors. Add Chinese consumers to the mix and it seems anything goes. E-retailer JD.com (JD.NASDAQ) raised US$1.8 billion in an IPO recently, despite only scraping its first profit of just $36 million last year on revenue of $11.2 billion. It also priced its shares at $19, the top of its indicative range and higher than analysts were expecting – even at a turbulent time for tech stocks. Perhaps China is that rare bright spot out there. “[The IPO] reflected a bullish sentiment towards China’s internet sector, which is among the few sectors to prosper amid a gloomy macro economy,” Kevin Tam, a senior research analyst at Yamaichi International in Hong Kong, said by email.” This positivity is even helping the market overcome fears of fraud associated with Chinese stocks listed overseas that have recently resurfaced. “Fake accounting is still a major risk in China stocks, but generally the internet sector is more trustworthy,” noted Tam. “Moreover, JD is a well known e-commerce platform and hence investors are less suspicious of it.” But not everything related to the internet is beyond reproach. JD.com founder Richard Liu said in a media interview this week that he wants to beat e-commerce behemoth Alibaba Group, which is on track for an IPO of close to $20 billion this summer in New York. “I don’t think this is a realistic target, more likely [it is a] kind of PR gesture,” commented Tam. As long as JD.com’s revenues keep reaching for the sky, investors are likely to let Liu’s dreams aim high too.
Killjoy regulators pull the plug on the best internet TV content
China’s couch potatoes could soon be reaching for the remote if their internet TV providers are taken off air. The State Administration of Press, Publication, Radio, Film and Television has reportedly issued a letter asking makers of set-top boxes to pull video content providers such as Youku (YOKU.NYSE), Baidu iQiyi (BIDU.NASDAQ), Sohu (SOHU.NASDAQ) and Tencent (00700.HKG) from their offerings. The regulation echoes the Internet TV License Holders Operational Management Requirements issued by the SARFT back in 2011, which forbids internet TV integrated platforms from connecting to unapproved internet TV content service providers. Losing access to billions of Chinese eyeballs could come as a blow for the content providers, but it won’t hurt their earnings for now as they are relatively early in the set-top box area and do not have any revenue contributions coming from their set-top box businesses as of now, noted Barclays Research. “There should be no near-term impact on these companies’ financials if the reports are true.” To catch the attention of viewers, video operators could alternatively provide content to Internet TV license holders, work with hardware manufacturers to put video interface on the hardware or employ innovative marketing strategies boosting proactive app downloads. Looking ahead, Barclay Research sees large content-rich video operators Youku, Baidu iQiyi, Souhu and Tencent as better positioned in the set-top boxes and SmartTV terrain as they have the competitive content libraries smaller players, hardware firms and license holders lack.
Is there anything safer than a Chinese house?
Investors looking for an investment as safe as houses probably shouldn’t turn to China at the moment. The ongoing debate about where prices are heading is distracting everybody; buy in Shanghai but sell in Wenzhou (if you can sell in such an illiquid market that is). Analysts at Bocom International in Hong Kong have downgraded the Chinese property sector as cash flow problems and risk of developer defaults keep sector valuations flat for the time being. The companies that build homes are mostly struggling with cash flows in light of the market stall. But pauses in home buying in China tend to only be temporary. As soon as one developer starts discounting others will follow and all that pent-up demand will rush to the market as surely as a moth to a flame. Short-term movement could even come from an easing of property restrictions or loosening of monetary policy, although Bocom analysts “believe it is still early to hope for unwinding of key property measures.” With China’s urbanization playing out there is a need for housing, so exposure to real estate is not a one-way bet downwards. “Large-cap developers with strong brands and longer debt maturity should outperform going forward,” Bocom notes. CR Land (1109.HKG) is their top pick. Just avoid the firms with no cash to see them through these tough times.
There are no Hong Kong listings next week.