Good morning,
Let's see if I can address your thoughtful points:
>> were investors not cognisant of the fact that BABA was in fact, listed in the US under the VIE structure?
Of course they were (well some of them anyways). But risk prices, like stock prices, change all the time. In the beginning, it was assumed that in time China will work out the details and become more like the US. It is now clear this is not going to happen.
Furthermore, tensions between the US and China, China's increased emphasis on safeguarding their data (including accounting and audit info), and fraud cases such as Lukin Coffee, have all increased the *VIE* risk premiums. There are of course other risks associated with the Chinese stocks (e.g. the regulatory framework and geopolitics). But that is a separate issue with different premiums.
>> I do not command the kind of funds that would enable me to exert meaningful influence over the board
This is irrelevant. While you personally may not have influence over the boards, you still benefit from the actions of those who do. When a company is open to takeovers or activism, eventually another player enters the foray when conditions warrant it. The issue is analogous to saying that while I personally do not carry the clout to affect political decisions, I still benefit from living in a democracy. Or if you want to take the other side, we all are affected by big lobbies, even if we are not members of the lobby groups. It is the system that matters, not the individual.
>> Re: #3 and #4
Yes and no. Some Chinese companies, in the interest of long term relations with foreign investors, do more or less act in the shareholders interest. But overall they are more than half a century behind the US in their corporate culture. If you study the behavior of US public companies in the first half of the 20th century, you see what I mean. It was not until the '80s that shareholder interest became a major theme of the US public companies.
More troublingly, Chinese companies are primarily beholden to the CCP rather than their shareholders. There will not be a changing of that. This is a primary requirement of their system (rather than a capitalist system).
None of this means that BABA is a bad investment or is worthless. But it does mean that comparing the Chinese companies to their US counterparts is not straightforward. The Chinese companies should always trade at a steep discount to their American counterparts. When that risk premium wanes, the market is near its top. |
