Veteran EM investor Mark Mobius reveals the 2 tech giants that are key to any portfolio
Harry Hamilton 02/10/2023
Veteran emerging markets investor Mark Mobius has named Alibaba and Tencent as key stocks in any portfolio investing in developing economies. Mobius said the Chinese technology giants “could be the foundation of any portfolio” despite recent volatility. They are “still making good profits,” he said, despite the “incredible” decline in their share prices over the past three years. Alibaba ‘s stock, also listed on the NYSE, peaked in October 2020 on the eve of new restrictions on technology companies unveiled by Chinese authorities. Shares have since declined by more than 70%. Similarly, Tencent peaked in early 2021 and has fallen by more than 60%, alongside the broader growth technology sector. BABA 5Y line Alibaba Mobius, who founded Mobius Capital Partners in 2018 after three decades at Franklin Templeton, said the “interesting aspect” of Alibaba is its potential spin-offs, “which could be very, very good for them.” In March, Alibaba said it would split into six business groups , each with the ability to raise outside funding and go public, in the most significant reorganization in the Chinese e-commerce giant’s history. Last week, it revealed plans to list the first of its spin-offs, its logistics unit Cainiao , on the Hong Kong stock exchange. Mobius is known for his long-term conviction picks of smaller companies, but stressed the resilience of the two Chinese tech titans. “At the end of the day, they’re down incredibly, and they’re still making good profits,” Mobius told CNBC’s Street Signs Asia Friday. Investment banking analysts also believe Alibaba’s decision to reorganize into multiple independently listed divisions will “unlock value” at a time of slowing economic growth in the world’s second-largest economy. “Despite facing economic uncertainty, consumption demand appears to be receptive to price discounts, driving [customer management revenue] revenue to double-digit growth. At the same time, we saw a meaningful upside in profitability as both China commerce remained efficient, while other business units narrowed losses significantly,” said Mizuho Securities analysts led by James Lee in a note to clients on Aug. 10. Mizuho lifted its price target on the stock to $145, which points to a 70% upside from current levels. “With a decentralized strategy, we expect the six business units to be positioned to compete effectively and unlock value through listings,” the analysts added. Chip stocks Mobius, who previously managed $50 billion worth of assets at Franklin Templeton, predicted China will “surprise the world” and make “incredible advances” in chip capabilities over time, driven by government policy priorities. “They are going to surprise the world because of the incredible emphasis they are putting on chips and on duplicating what TSMC is doing in Taiwan,” Mobius said, referring to Taiwan Semi , which currently makes the high-tech chips for Nvidia and AMD . “It’s not going to happen overnight. But it’s going to happen, I believe, and we’re going to see incredible advances in that area.” Mobius said China’s goal is to overtake the U.S. in semiconductors, which requires advances across the tech ecosystem. He pointed to Huawei’s recent chip breakthrough as evidence of the “incredible resources” that Beijing appears to be directing toward the sector. However, the veteran stock picker revealed his current preference is for lesser-known companies involved in the semiconductor sector over TSMC and China’s SMIC. The Mobius Emerging Markets Fund is invested in Taiwan-based Elite Material , which manufactures the base materials for circuit boards used in electronic devices, and Zilltek Technology, which designs and develops circuit boards. The $42 million fund’s largest stock holding is South Korea’s LEENO Industrial, which tests semiconductors. The fund manager said he likes the agility and profitability of smaller tech companies in the region but acknowledged geopolitical risks. “If something happens, God forbid, in Taiwan, it’s all brain power. They can fly out at a minute’s notice. In fact, they already have operations in California and other parts of the world. So these companies are really very interesting companies,” Mobius added.
