Dividends and Bejing increases pressure on Alibaba with anti-monopoly probe

During COVID, one of the big winners on the stock exchanges has been the tech sector. For a wide variety of reasons, the tech sector influence in the economy has increased and equally important profits soared. In the US exchanges owning directly or indirectly the FANG stocks has increased your portfolio. However with the greater influence, all governments have started to ask are the tech sector too important? too unregulated? can we control it? The solution in the US is different than the solution in China.

In an article by Joe McDonald of the Associated Press offers insight into how China is trying to controlled its tech sector. China has the world’s biggest population of internet users at 940 million, according to government data. An unusually large share of the public use e-commerce and other online services, giving internet companies outsized influence in retailing, entertainment and other industries. If you think back a number of years, the US had a phone line in almost every home, then a cable and then the internet. China and other countries went straight to the internet and smartphones.

In China the biggest internet companies are Alibaba, JD.com and Tencent, with Alibaba as number one company. Alibaba’s revenue rose 30% in the 3 months ending in September to $23.4 billion. In November, Alibaba has the single’s day festival from Nov 1 to 11 and spending rose to $75.1 billion.

In China, the ruling party can clip any wings it wishes or wants to. The ruling party says anti-monopoly enforcement in tech industries will be a priority. What does that mean, according to Francis Lun, chief executive of Geo Securities in Hong Kong, the era of free growth and ultrahigh growth is over. The government will decide what you can do.

Alibaba was set up in 1999 and operates in retail, business to business, consumer to consumer and has expanded into financial services, film production and other fields. Its founder Jack Ma has a fortune estimated at $59 billion. Alibaba owns Ant financial services and it competes against state owned banks for business, squeezing their profits. The state owned banks feel theaten and have the government supporting them.

Linking to dividend paying stocks, when the established players make money competition is a wonderful thing in theory. When the established players lose money or do not make as much, competition is not a good thing. When you invest and the companies are making profits, the process is less important until they make less. Process matters all the time, particularly for governments. If the companies you invest have good governance, then they will be able to whether the cycles in the market.

There are more questions than answers, till the next time – to raising questions.

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