Monday 2 November 2020
Our pick of the week’s biggest stories affecting Aussie equity markets
IN FOCUS: CHINA’S ANT GROUP SET TO DELIVER THE WORLD’S BIGGEST IPO
What’s going on?
Ant Group is behind the world’s largest online payments platform Alipay. Alipay started off as a payments system for China e-commerce giant Alibaba back in 2004, now Alipay has over a billion users in 200 countries. Broadly it’s become a digital finance technology platform and has been trying to get a finger in every part of China’s economy and beyond.
The company is set to be dual listed on the Hong Kong and Shanghai stock exchanges on November 5 hoping to raise a record $34.4 billion USD. Overall its valued at US$313 billion making it bigger than JPMorgan Chase & Co. Its parent company Alibaba also boasted the largest sharemarket debut when it listed in New York for $25 billion USD back in 2014.
Ant Group says they’ll use the raised capital to expand their financial services like cross-border payments as well as invest more into research and development.
What’s the backstory?
From its beginnings as an escrow service, Alipay grew and was spun off from Alibaba and into Ant Group in 2014 with the help of private funding. Alibaba still owns a 33% stake. Now Ant Group runs a gamut of financial services:
- Alipay – online payments
- Ant Fortune – wealth management
- Sesame Credit – credit scores and financial advice
- MYbank – lends to small and medium businesses
- Xiang Hu Bao – a mutual insurance platform
Part of the reason for Ant Group’s success is locking users into their ecosystem, 80% of customers use 3 or more of their services, 40% use all 5.
It’s also investing enormously in tech like cloud computing, artificial intelligence, robo investing, risk control and block chain technology.
It’s notable Alipay has always been profitable and is continuing to be so. In the first 6 months of this year Ant Group generated 21.9 billion yuan of net profits. Interestingly, the company is beginning to see a shift in its revenue structure; it’s generating more from its technology services fees (50%) while the payments business is now at 36% as of the first half of this year.
What does it mean going forward?
If all goes well Ant Group with be the fourth largest financial company in the world behind Warren Buffett’s Berkshire Hathaway, Visa and Mastercard. If it goes really well there’ll be a greenshoe option for a 15% over-allotment of shares.
But it isn’t all rosy, China’s government has already gotten involved; it has stopped the company from investing customer deposits, with the People’s Bank of China becoming the custodian of all deposits from third party payment groups. It’s expected this will be far from the last Ant Group hears from the China’s rulers.
Geopolitical tensions aren’t helping either – founder Jack Ma once had ambitions of employing a million Americans but those hopes were dashed. Ma cited trade tensions as the reason in 2018. More recently a US State Department proposed to add the company to a trade blacklist. Other countries like India are cracking down on Chinese apps which could hurt growth.
Overall the fintech unicorn (or techfin as Ant Group prefers to be called) has challenges ahead, but for investors – getting to be part of the China growth story is just as alluring as ever.
IN BRIEF:
AUSTRALIA’S OUT OF RECESSION
We are technically out of our first recession in 29 years – with the Reserve Bank announcing the news on Tuesday. A recession is defined as two quarters of economic contraction – Australia experienced that in March (a drop of 0.3%) and June (a drop of 7%) but September has seen the economy grow – the exact figures out next week.
Australia is by no means out of the woods though, the Reserve Bank’s still reportedly considering dropping the cash rate from the already phenomenally low 0.25% to 0.1% as well as quantitative easing measures. Measures like JobKeeper have helped reverse the downward trend, while Victoria’s restrictions have not turned out to be as detrimental as first forecast.
The fallout is still unknown though, the Reserve Bank believes over 5000 businesses could fail while the Big Four banks are cautious about how excited to get over this ‘technical recession’ considering 930,000 people are still out of a job.
MAJOR COAL CUSTOMERS COMMIT TO CARBON ZERO
Japan and South Korea this week have pledged to become carbon neutral by 2050 – while China announced their aim of carbon neutrality by 2060 last month. 33% of Australia’s total export market is from selling China, Japan and South Korea iron ore (15%), natural gas (9%) and coal (9%). It’s feared when they move to carbon neutral future demand will fall.
While these decisions from such big customers present a major risk to the industry, India and emerging Southeast Asian nations like Vietnam, Indonesia, the Philippines, Malaysia and Thailand are all likely to contribute to demand for these commodities as Japan, China and South Korea begin to pull away.
$8M POURED INTO AUSSIE SOLAR CELL START-UP
A Sydney based solar start-up has attracted $8 million from venture capitalists thanks to discovering a cheaper way to make solar cells using copper rather than silver.
Blackbird Ventures and Mike Cannon-Brookes’ Grok Ventures have taken the plunge after SunDrive co-founders David Hu and Vince Allen scaled up their copper-wired solar panel from 2 square centimeters to 250, according to Nine.
The solar industry is expected to expand rapidly, but silver is an expensive and sparse commodity. Using copper instead could make a serious difference to the bottom line; it’s 100 times cheaper per kilogram and 1000 times more abundant than silver.
SunDrive is planning to have a fully automated production line by the end of 2022.