For Immediate Release
Chicago, IL – June 12, 2018 – Today, Zacks Investment Ideas feature highlights Features: Baidu BIDU and Alibaba Group BABA.
Is the North Korea Summit an Investment Opportunity?
U.S. equity markets are shrugging off a contentious meeting of the G7 over the weekend, apparently focused on optimism for a successful outcome from the meeting between President Trump and North Korea’s Kim Jong Un.
Who are the potential winners if the summit is successful? Chinese companies, including internet giants Baidu and Alibaba Group.
In a busy week of economic data - including a two-day meeting of the Federal Reserve with a rate announcement scheduled for Wednesday afternoon - all eyes are on Singapore where the President and the Supreme Leader of North Korea will hold the first ever in-person meeting between leaders of the two countries on Tuesday morning.
CME Fed Funds futures contracts predict a 95% chance of a 25 basis point hike in short term interest rates and the equity markets seem to be treating the results of the meeting as a foregone conclusion.
The European Central Bank, which, like the U.S. staved off economic decline with low interest rates and a 2.5 trillion bond buying spree, will meet on Thursday to discuss the end of quantitative easing. Just like the Fed meeting in the U.S., the equity markets seem sanguine about the probable end of ECB stimulus, with the broad markets up fractionally and the VIX hovering near 12% at mid-day Monday.
The much bigger wildcard is the North Korea Summit.
At stake in Singapore – beyond the concept of de-nuclearization of the Korean Peninsula or a peace agreement between North and South Korea – is the relaxation of sanctions against North Korea which could have wide-ranging economic benefits on the peninsula and across Asia.
With 25 million citizens, even if North Korea were to join world markets unhindered, its economic output would barely move the needle, but successful negotiations would be a positive sign for trade relations with China, reducing the likelihood of a tariff-fueled trade war.
Chinese internet search company Baidu is often referred to as “Chinese Google” and the comparison is not far off the mark. Just like its American counterpart, Baidu is far and away the most used search engine in China and also offers extensive web and app development services and is investing in Artificial Intelligence technologies and Autonomous driving automobiles.
Baidu has been a strong earnings performer, bettering the Zacks Consensus Estimate in each of the last 15 quarters. Predictions for 2018 has been rising lately with 5 upward revisions in the past 60 days, with the company expected to post $10.52/share this year and $12.45 in 2019, increases of 7% and 18% respectively. Baidu is a Zacks Rank #1 (Strong Buy).
If Baidu is the Chinese Google, the Chinese equivalent of Amazon is the Alibaba Group. After becoming China’s largest internet retailer with revenues of $63B and growing, Alibaba now operates all over the globe, including taking on Amazon head-on in another of the world’s largest potential markets – India.
Through a series of acquisitions and strategic partnerships, Alibaba now has deep penetration in the Indian market, including a majority stake in Indian online grocer BigBasket, which sells a wide variety of foodstuffs and household goods.
Thanks to revenues that are expected to grow 65% in the current fiscal year, BABA shares have been on a tear recently hitting an all-time high of $211 recently, giving the company a market capitalization of $525B – making it the 6th biggest company in the world. BABA is a Zacks Rank #3 (Hold).
As major negotiations occur that will shape global economic policies for years to come, it’s important for investors to focus on potential winners even when they lie outside of our shores, and Alibaba and Baidu stand to gain handsomely from more accommodating U.S. – China trade relations.
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