Is China about to crash? Here’s your answer…

Is China about to crash? Here’s your answer…

Considering all the ink spilt about the North Korea ‘threat’, it’s sure not showing up in the price of Alibaba Group [NYSE: BABA].

The Chinese ecommerce giant is up over 90% this year. Its market cap is closing in on US$400 billion. Last week its results showed revenue was up 50%.

You might remember I suggested in The Daily Reckoning on 29 June to go buy some stock in this one for the long haul. It was US$143 then. It closed at US$169 in US trade last night.

China’s middle class just keeps growing, and keeps spending money online. The beauty for Alibaba is they can mine the treasure trove of data all this generates to target its advertising in ever refined ways.

The performance of this stock makes me think China is a lot stronger than most people give it credit for. After all, Alibaba is seeing more high end and luxury good sales, at least according to the Wall Street Journal.

It’s not alone, either…

Italian online luxury group Yoox-Net-a-Porter also reported results recently. Revenue was up 20%, as was their average cart value. People are spending more. North America and the Asia Pacific were the fastest growing regions.

This is positive momentum for the world economy, with people happy to spend on top-of-the-line products.

Alibaba has all the potential to branch out into a myriad of different industries in the same way as Amazon. Alibaba is already building up its cloud computing and digital entertainment divisions.

It has a major stake in Ant Financial, one of the top two payment platforms in China. It’s moving into physical retail and supermarkets in a similar way to Amazon too.

It’s also building up a strategic business in south east Asia and tapping into the Chinese travel boom.

There’s a lot to like about this stock. But, more importantly, it gives us a very handy barometer of what’s happening inside China. It’s a good stock to follow for this reason alone.

So with its results booming, I find it hard to believe China is going into a serious downturn any time soon. Take note of the fact that, so far anyway, Alibaba’s stock has kept on rising after the result’s announcement.

That’s a bullish sign.

BHP comes through with some nice numbers

Why do you care again?

Because a healthy China makes for a healthy Australia, especially in the mining sector.

We run a strong trade surplus with China.

And with iron ore still flirting near US$80 a tonne, there’s millions pouring into selected Australian pockets.

One of those might be yours, via your super fund, at the very least. BHP, after all, is a mainstay in nearly all of these. BHP tripled its final dividend for the year, after announcing its results today.

BHP may have missed its earnings expectations slightly, but the Big Australian is genetarating a lot more free cash than it has in recent years.

Again, this is bullish. The recovery in commodity prices means BHP is making strong margins on its key four commodities of iron ore, coal, petroleum and copper.

Check it out…

170822 Commodity Basket Index
Source: BHP

This gives the company the firepower it needs to invest in new projects. Or it could buy out any junior miner/project it might like the look of.

BHP says it’s going to put about a billion dollars of its free cash flow into exploration.

Most of BHP’s exploration budget appears to be going into its petroleum and copper divisions.

BHP’s stragetic focus on copper could pay off big time in the future if some of the current copper demand/supply projects play out.

It might be happening right now. Copper has gained 15% since May to hit its highest price since 2014.

That could help Sandfire Resources [ASX:SFR], too, another copper player that needs to replace its existing production.

Analysts have said the company has about 12 months to find a big deposit to replace the DeGrussa project that’s slowly running out of minable copper. Sandfire has over $100 million in cash to pay for anything. Strong copper prices gives it good cash flow.

It just needs to find a project.

The chief of the company was even prepared to admit he’d buy a project of lesser quality just to keep his team together until they find something better.

You can see how some of the money in the bigger stocks can flow to the juniors here.

I mention this to show you that coming by viable deposits is no easy thing these days. Even BHP forecasts steeper cost curves in the future.

This is one reason why I think the junior mining sector really could be very strong in the foreseaable future.

Commodity prices could strengthen if the market begins to price-in falling supply with so much demand coming from Asia.

It’s not all going to happen tomorrow, but now’s a great time to start looking. That’s what I’ll be doing in my paid newsletter Small Cap Alpha, anyway.

I do urge you to take a look at that here right now…because the once-off charter price offer is about to close. You get the cheapest price you will ever see (a 60% discount for the first year!) plus a 365 day trial period to see if it’s for you.

It’s a ridiculous offer (we will never make it again) and that’s why it’s coming to an end next week.

Again, go here to see what it’s all about.


Callum Newman
Editor, The Daily Reckoning Australia