Jack Ma's Ant is the smallest indicator of Chinese technology

HONG KONG, Jan 9 (Reuters Breakingviews) – Jack Ma is digging China’s consumer internet out of the trash. After its fintech champion Ant says its founder will take control, shares in subsidiary Alibaba (9988.HK), rose 7% in Hong Kong on Monday morning. It could mark the end of Ant’s campaign to appease regulators after they derailed the group’s $37 billion initial public offering at the end of 2020. It’s unclear if it marks much more than that. .

The Saturday business announcement that the voting interest of more than 50% of Ma will be reduced to approximately 6% and that a fifth independent director will join the board of directors. Although the dilution was expected and that its economic stake remains the same, investors could see it as a drag on Beijing’s campaign to rein in the country’s powerful internet giants, especially juggernauts like Alibaba, which owns a third of Ant. The e-commerce giant’s market capitalization has fallen two-thirds since a peak in 2020, wiping out more than half a trillion dollars of value. The stock currently trades at just 12 times forward earnings, well below its five-year average of 21 times, according to Refinitiv. Other tech companies on the continent have seen similar valuation declines.

Unsurprisingly, Ma’s defense boosted Alibaba and other ant-affiliated groups, including Shenzhen-listed Longshine Technology. (300682.SZ). It comes amid signs of a broader easing in China’s internet industry and an easing of Covid-19 restrictions that should eventually impact earnings. In late December, for example, authorities resumed approvals of imported video games. Market leader Tencent’s (0700.HK) the stock is already up more than 10% since the start of the year.

Beijing may be easing tech champions, but it could be quicker than permanent. With the economy faltering after years of pandemic shutdowns as foreign demand cools, China needs the big tech giants to stop cutting staff for now. Alibaba’s revenue is expected to rise just 3% in the current fiscal year, according to the average analyst forecast on Refinitiv. As for Ant, its restructuring will bring it closer to a financial holding company, subject to traditional loan and capital restrictions: a less profitable thesis.

Elsewhere, state-owned companies are pushing for development heights, while cybersecurity and censorship obligations continue to complicate private investment. There’s always a risk of over-celebration, but any excuse to reassess the outlook for China’s dilapidated internet sector will do.

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BACKGROUND NEWS

Chinese fintech company Ant on Jan. 28. 7 announced that its founder Jack Ma would relinquish majority control of the company as part of a broader “corporate governance optimization”.

Ma held more than 50% voting rights in Ant through his investment vehicle, Hangzhou Yunbo, which effectively controlled two other entities with a combined 53.46% stake in Ant. As part of the latest restructuring, its voting share will fall to 6.2%.

The transfer of control of Ma comes as Ant nears the end of its two-year restructuring, with Chinese authorities set to fine the company more than $1 billion, Reuters reported in November. , citing sources.

Editing by Pete Sweeney and Katrina Hamlin

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Robin Mak

Thomson Reuters

Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a research associate for the Asia Society’s global policy programs in New York, where she focused on US-Iran relations, US-Burmese relations and sustainability issues in Asia. She also worked as a researcher at the Carnegie Endowment for International Peace in Washington, DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a master’s degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.