On the backdrop of President Biden's meeting with China's Xi Jinping this week, Alibaba (BABA) has scrapped plans to spin off its cloud segment, citing the Biden administration's recent export restrictions on AI chips to China.
KraneShares Chief Investment Officer Branden Ahern comments on Alibaba's value amid international trade pressures and what US tariffs could mean for Chinese business relations.
"The Biden administration is looking to reset the relationship," Ahern tells Yahoo Finance on easing trade tensions with China, adding on Biden's meeting with President Xi: "There's clearly [an] effort to stabilize the relationship, and I think that there's really strong progress from the four-hour meeting around further military communication."
Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.
This post was written by Luke Carberry Mogan.
Video Transcript
- So how much of a viable portfolio play is this still while that is perhaps, at least as Alibaba is citing, one of the, kind of, headwind concerns?
BRENDAN AHERN: Yeah, I mean, Alibaba's decision to spin off the six underlying companies, the different-- six different business units was to force some of the parts analysis on investors that they believed that the company is very much undervalued.
And they were going to force that analysis on investors by spinning off these underlying companies.
So by putting that on hold, some of that I think is due to market conditions, just the China-Hong Kong market has not had a great year.
So it's not a great environment to be doing spin offs and IPOs.
I do think it's very positive.
The company is doing its first dividend ever.
That really proves out there very, very strong cash flows.
The company's got $60 billion worth of cash on the books and a dividend is a strong move from management.
- Brendan, when it comes to the meeting between President Xi and President Biden yesterday, the tone, at least initially, seemed a bit warmer between the two sides.
From an investment perspective, are you at all optimistic that maybe we could see some relief in the tensions between the US and China?
BRENDAN AHERN: Yeah.
Clearly all this year, the Biden administration is looking to reset the relationship.
We've seen Blinken, Yellen, Kissinger, Kerry, Raimondo, all travel to China.
Senate Majority Leader Chuck Schumer and 5 other senators.
There's clearly a effort to stabilize the relationship.
And I think there's really strong progress from the four hour meeting around further military communication, which is obviously vitally important, but also addressing the issue of fentanyl agreements exports stopping that from China, which would be very, very positive move.
- If there is a solid move that comes forward between the two entities, the two largest countries by GDP in the world, when you think about what would be the immediate beneficiaries either via tariffs that get rolled off or even by some of the intellectual property kind of tie ups that have ultimately led both of these countries to say to the entities that operate within them, hey you can't do business with anybody and sell a specific type of chip into this region.
Who are the immediate beneficiaries in that instance, if we do see some of the tit for tat start to roll off?
BRENDAN AHERN: Yeah, yeah.
I think it's a great, great point that this, kind of, juvenile tit for tat, it really jeopardizes the very strong economic relationships vitally important for US farmers.
China is the largest buyer of US agriculture, for US semiconductor companies.
But look at Apple, right.
20% of their revenue.
Tesla, almost a quarter of the revenue.
ExxonMobil, more than 10% of the revenues coming from China.
So corporations have been getting along with one another quite fine.
It's really diplomatically we've had a strained relationship that really during COVID, you had COVID babies but you also had COVID divorces.
And unfortunately, the US-China diplomatic relationship went through a little bit of a divorce and now we're in kind of proverbial marriage counseling at the moment.