Overview

Veteran investor Mark Mobius, known for his expertise in emerging markets, has identified Alibaba and Tencent as key stocks for any portfolio investing in developing economies. Despite recent volatility, Mobius believes that these Chinese technology giants could serve as a solid foundation for investment due to their consistent profitability.

Alibaba’s Performance

Alibaba, listed on both the NYSE and the Hong Kong stock exchange, has experienced a significant decline in its share prices over the past three years. In October 2020, the company’s stock reached its peak before new restrictions on technology companies were implemented by Chinese authorities. Since then, Alibaba’s shares have fallen by over 70%. However, Mobius highlights the potential value in Alibaba’s spin-offs, which could greatly benefit the company.

Tencent’s Performance

Tencent, another Chinese technology giant, has also faced a decline in its stock prices, dropping by more than 60% alongside the broader growth technology sector. Despite this, Mobius emphasizes the resilience of both Alibaba and Tencent, highlighting their ability to maintain profitability despite significant decreases in share prices.

Alibaba’s Reorganization

In an effort to unlock value, Alibaba announced its plan to split into six independently listed business groups. Each group will have the opportunity to raise outside funding and go public. Last week, Alibaba revealed its intention to list its logistics unit, Cainiao, on the Hong Kong stock exchange. This reorganization is seen as a strategic move to navigate the current economic slowdown in China.

China’s Advances in Chip Capabilities

Mobius predicts that China will make significant advances in chip capabilities over time, driven by government policies and priorities. He believes that China’s emphasis on chips and its efforts to replicate Taiwan Semi’s success will lead to remarkable progress in this area. China aims to surpass the United States in semiconductor technology, which requires advancements across the entire tech ecosystem.

Preference for Smaller Semiconductor Companies

While acknowledging the geopolitical risks involved, Mobius reveals his current preference for lesser-known companies in the semiconductor sector over industry giants like TSMC and SMIC. The Mobius Emerging Markets Fund has investments in Taiwan-based Elite Material, which manufactures circuit board base materials, and Zilltek Technology, which specializes in circuit board design and development. The fund’s largest stock holding is South Korea’s LEENO Industrial, a semiconductor testing company.

Conclusion

Mark Mobius recommends Alibaba and Tencent stocks as essential components of any portfolio investing in developing economies. Despite recent volatility, he believes in the long-term potential of both companies. Additionally, Mobius predicts that China will make significant advances in chip capabilities and aims to overtake the United States in the field of semiconductors. While expressing a preference for smaller semiconductor companies, he acknowledges the geopolitical risks associated with investing in emerging markets.