It wasn’t the $30 billion some close China watchers like the people over at KraneShares had predicted. It was more. Alibaba’s Singles Day, the annual shopping spree/telethon-like event led by China billionaire and BABA founder Jack Ma racked up another record-breaker on Sunday with $30.8 billion in sales. That’s one day. That’s more than Black Friday and Cyber Monday combined, times two.
Singles Day is symbolic of an unstoppable China.
And here’s why.
First off, Made in China is on an absolute tear. Part of this is due to a very strong U.S. economy and inventory buildup on the part of some American companies worried about tariffs. China’s international trade activity rose 23% in October over a 12-month period, up from the 13.9% expansion recorded in the third quarter. Export growth of 20.1% was the fastest growth rate for China in around four years. Most of that was thanks to the U.S., which imported 13.2% more in October compared to the same period a year ago, according to government trade figures compiled by Panjiva Research, a data unit of S&P Global Market Intelligence.
China imports in the 12 months ending September 30 hit $2.13 trillion after rising 7.1% annually in the past three years.
“At current rates of growth China could be a bigger customer globally than America … within five years,” says Chris Rogers, research analyst for Panjiva.
Dear Mr. President, the Chinese consumer is not aware that there is a trade war going on.
In the first nine months of 2018, consumption accounted for 78% of GDP growth, up from a 46% share during the same period in 2013. One of the reasons why the U.S. economy is fairly immune from the retaliatory tariffs from China is because the U.S. economy is not so dependent on exports. Well, neither are the Chinese.
Inflation-adjusted retail sales rose 7.3% during the first three quarters, down from 9.3% during the same period last year and 9.8% two years ago. It is arguable that these numbers would have declined regardless of the trade spat, because the Chinese economy is slowing as the top-down managers in Beijing put the brakes on credit and overdevelopment, particularly in real estate.
By comparison, real retail sales in the U.S. rose 2.9% during the first 8 months of 2018, and the economy is growing at rates it hasn’t grown in at least a decade.
The 9% real retail sales growth rate for the full year of 2017 generated an incremental expansion in nominal consumer spending that was 135% larger than the increase resulting from 12.4% growth in 2007, says Andy Rothman, a strategist with Matthews Asia in San Francisco.
In other words, the opportunity for selling goods and services to Chinese consumers at the slower growth rate is far larger than the opportunity ten years ago, because China is spending more and buying more expensive items, like technology goods.
Alibaba’s record-breaking Singles Day comes at a time when the stock is in a bear market. Like all of China, the mainland Chinese stock market is taking a beating from Trump’s trade war.
But considering the beating they have taken this year, and considering the midterm elections put some anti-tariff Democrats in the House, a change of sentiment for China securities may be in the works.
China tech has led the main emerging market indexes lower.
The upside: The decoupling of Chinese tech from its U.S. peers—the famous FAANGs—is set to accelerate amid a struggle for tech dominance. Plus, China tech stocks are cheaper that U.S. tech stocks.
Jack Ma’s Alibaba can ring up sales on Singles Day that Jeff Bezos can only dream about on Cyber Monday.
If political risk and higher Fed rates are about to undercut sentiment in the U.S., investors might find it cheaper to put money to work in companies that are doing similar work to an Amazon and selling a lot more stuff in the process.
E-commerce stocks in China are mainly dominated by Tencent, JD.com and Alibaba. JD has its own shoppers’ holiday in mid-June. This year, JD.com sold a whopping $24.7 billion worth of goods in one day.
China tech is more than just e-commerce.
The market for tech services is developing and getting larger. Media companies like Baidu and Sina are part of the everyday fabric of life in China.
“We see changes in trade and the competition for tech dominance amplifying these differences,” says BlackRock’s chief investment strategist Richard Turnill as Trump makes it more costly for China to import American computer hardware. Reduced cross-border investment and joint ventures with the U.S. could be negative byproducts of ongoing trade tensions, but China’s focus on its domestic market is something many foreign investors are overlooking. Singles Day is a testament to what China’s home market has to offer companies across China’s e-commerce sector.
Plus, for Alibaba and its rivals, there is potential for an upside surprise later this month when U.S. and China leaders meet in Buenos Aires at the G20 meeting November 30 and December 1.
“Chinese and U.S. tech is decoupling,” says Turnill. “Even without worsening tensions. China is devoting capital to innovation.”
Alibaba’s Singles Day sales surpassed expectations. Sales were 27% higher than they were last year.
Sunday marked the tenth go-round of the annual Singles Day event. This year’s sales bonanza marked Jack Ma’s last year as chairman of the company he created. During the 24-hour period, Alibaba offered huge discounts across its e-commerce sites such as Tmall and sold over $1 billion worth of goods in less than a minute and a half.
