China has always been a tricky one for investors. Sure, lots of potential, but how? Opportunities are opening up!
Psst - investing in China? How about Alibaba and Starbucks?
There are reasons not to invest in China - the Shanghai Stock Exchange Composite Index is down by around a quarter since the beginning of the year. It is also inclined to look frothy. The index leapt four-fold between 2005 and 2007, crashed, leapt again in 2015, and crashed again. Over the last five years the index is up around a third but is still only slightly higher than half the 2007 peak.
It’s not easy for Brits to invest in the market anyway, but even if it was, I think words like ‘don’t,’ ‘touch’ and ‘barge pole’ would get thrown around.
The latest drop was down to fears of a trade war between China and the US. Fears that debt levels are way too high won’t go away either.
Wake up and err, smell the coffee
It turns out there are other ways to invest in the land behind The Great Wall. Take coffee, for example. According to the International Coffee Organisation, consumption of coffee in China has risen three-fold in the last four years.
We keep hearing that data, or lithium, is the new oil. Well, maybe coffee is the new oil.
And that takes me to Starbucks.
Starbucks and China
I have a confession, as a consumer, I am not a fan of Starbucks. But that’s just me, its worldwide popularity shows plenty disagree.
In China though, home delivery is becoming important too.
China has long been a growth driver for the company, maybe things are set to really take-off. It has agreed a deal with Alibaba.
“Starbucks is to collaborate across key businesses within the Alibaba ecosystem, including Ele.me, Hema, Tmall, Taobao and Alipay, to significantly elevate the Starbucks Experience for Chinese customers,” revealed the company recently.
I thought that words spoken by Daniel Zhang, Chief Executive Officer of the Alibaba Group, put it well: “Starbucks is more than a destination for premium coffee and we share the same vision to pioneer a new coffee culture and lifestyle through innovation and technology.”
It seems that Starbucks and Alibaba are, between them, set to change China in one interesting way: creating a coffee culture. That strikes me as a big deal.
Starbucks was looking interesting before the deal was announced. Shares are up roughly two-thirds over the last five years, but as I write, they are around the same level they were at a year ago. Could that be an opportunity?
And that takes me to Alibaba. I can’t think of a better description of the company than ‘an Amazon for China’. It dominates online shopping in China, it flirts with off-line retail and its cloud business is growing fast.
The company is listed on the NASDAQ, so you can buy shares via The Share Centre.
Shares have suffered a tad of late over fears that a trade war between the US and China will hit sales, but unless a trade war affects the Chinese economy badly, the impact on Alibaba, which largely targets the domestic market, should not be great.
The AI opportunity
But China is interesting for another reason. Whether data, lithium or coffee is the next oil, I can say that AI and robots are the next industrial revolution; and China is moving into pole position.
Chinese knockers - I mean investment critics not human rights advocates - overlook this one.
Did you know that China is introducing a social credit system? You get points for your behaviour - how good a citizen you are, and points knocked off for bad behaviour, including, or so I understand, criticising the government. It reminds me of an episode of the TV programme Black Mirror, in which we mark everyone we meet, using a handheld device. Obtaining a high score becomes the number one priority of society; the end result is a very unhappy world in which no one dares act themselves.
I find the Chinese social credit system alarming. But it has one economic benefit. For it to evolve, AI needs data. In Europe, concerns over a possible emergence of an Orwellian state has led to GDPR. In China, where such concerns are less pronounced - research shows Chinese citizens are less bothered about data eroding privacy - AI is developing fast.
That is why not only Alibaba, but NASDAQ listed Tencent and Baidu are interesting.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees