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Why Alibaba and Tencent Should Be Key Stocks in Your Emerging Markets Portfolio

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Veteran Investor Mark Mobius Recommends Alibaba and Tencent for Developing Economy Portfolios

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Introduction

Veteran emerging markets investor Mark Mobius suggests that including Alibaba and Tencent stocks in any portfolio targeting developing economies is essential. Despite recent volatility, Mobius believes these Chinese technology giants could serve as a solid foundation for portfolios due to their consistent profitability.

Alibaba’s Performance

Alibaba’s stock, listed on the NYSE, experienced a peak in October 2020 but faced a decline of over 70% following new restrictions imposed on technology companies by Chinese authorities. However, Mobius highlights the potential of Alibaba’s spin-offs, which could contribute significantly to their success. The company recently announced plans to split into six business groups, each capable of raising external funding and going public.

Tencent’s Performance

Similar to Alibaba, Tencent also witnessed a decline of over 60% alongside the broader growth technology sector after reaching its peak in early 2021. Despite this, Mobius emphasizes the resilience of both Alibaba and Tencent, as they continue to generate substantial profits even amid significant share price declines.

Analysts’ Perspectives

Investment banking analysts believe Alibaba’s decision to reorganize into multiple independently listed divisions will unlock value, particularly during a period of slowing economic growth in China. Mizuho Securities analysts raised their price target on Alibaba’s stock to $145, indicating a potential 70% upside from its current levels. They also expect the six business units to compete effectively and unlock value through listings.

Mobius’s Outlook on Chip Stocks

Mobius predicts that China will make significant advances in chip capabilities, surpassing the U.S., driven by government policies. He highlights China’s emphasis on chips and its ambition to replicate Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Company). Mobius sees great potential for incredible advancements in China’s chip sector over time.

Mobius’s Semiconductor Investment Strategy

While Mobius acknowledges geopolitical risks, he prefers lesser-known companies involved in the semiconductor sector over major players like TSMC and China’s SMIC. His fund, the Mobius Emerging Markets Fund, invests in companies such as Elite Material, a Taiwan-based manufacturer of base materials for circuit boards, and Zilltek Technology, a circuit board design and development company. The fund’s largest stock holding is LEENO Industrial, a South Korean semiconductor testing company.

Conclusion

Mark Mobius, an experienced investor, recommends including Alibaba and Tencent in portfolios targeting developing economies due to their consistent profitability. He also predicts significant advancements in China’s chip capabilities and expresses a preference for lesser-known companies in the semiconductor sector. However, he remains mindful of potential geopolitical risks.

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