Is there a bubble in the Chinese market? Of course there is. You only need look at average p/es and at a chart of the Shanghai Composite to be pretty certain. However anyone still in any doubt need only look at the IPO of Alibaba.com (1688) last week in Hong Kong. The shares instantly more than doubled and ended their first day trading on a p/e of over 300 times.
But what does Alibaba actually do? It is usually referred to as “e-commerce company Alibaba.com”, a sign that not many people really know (yet another sign of a bubble…) but its basic business model is pretty simple: its website lists Chinese suppliers of manufactured goods to match them with buyers worldwide. Is it any good? Not according to the clothes and handbag designers I spoke to at the Billion Dollar Babes sample sale on Saturday.
One designer put it like this. “There are thousands and thousands of manufacturers listed. How do you know where to begin? You ask for a sample but without references how do you know who really made it and they can make it in volume? You still have to search all over the net to double check manufacturers, you have to make appointments and then you have to go to China and visit each factory yourself. You might get some leads from Alibaba but in the end that’s not actually worth paying for”
Alibaba founder Jack Ma says his company’s valuation makes sense because “China is a place where miracles are made.” Given that he also says he is in no rush to “monetize” his subscriber base (lucky given their lack of enthusiasm) it won’t be long before a miracle is exactly what his shareholders are praying for.
First published in The Evening Standard