There's No One-Way BAT in China

Baidu, Alibaba and Tencent aren't a sure thing for the top investors.
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A slowing Chinese economy hasn't undermined the belief of the world's largest emerging-markets stock fund in the country's internet industry. But investment returns show that big money doesn't always equal smart money.

Oppenheimer's Developing Markets Fund, an open-ended pool with $28 billion under management, raised its allocations in China's Baidu, Alibaba and Tencent -- collectively known as BAT -- by 63 percent over the past year.

Betting on BAT

The world's five biggest open-ended emerging-market stock funds have increased their allocations to shares of Baidu, Alibaba and Tencent

Source: Bloomberg

Oppenheimer isn't alone. Capital Group's American Funds New World Fund, the third-largest emerging-markets pool with $23 billion in assets under management, 1  tripled its investment in Alibaba from 0.43 percent of total assets at the end of March 2015 to 1.29 percent a year later. The Tencent holding more than doubled to 1.47 percent, making it one of the fund's top six stocks.

Nor are these increases outliers. Across the industry, investment advisers, as these fund managers are known, increased their share of Alibaba stock from 67 percent in July last year to almost 83 percent of the Chinese e-commerce giant's total, according to data compiled by Bloomberg. Baidu and Tencent have also seen bigger proportional holdings by investment advisers.


Baidu and Alibaba have taken investors on a rollercoaster ride over the past year

Source: Bloomberg

This long money is betting that China's continued development and an emerging middle class will drive profits at those companies best placed to benefit from rising consumer spending. Even as earnings weakened, economic expansion dwindled to the slowest pace in a quarter-century, and Chinese leaders told of continued struggles to boost growth, investment advisers added to their bets. Increased allocations in the fourth and first quarters show that dark numbers didn't scare them away.

Pick Me Up

As hedge funds reduced their stakes in Baidu, Alibaba and Tencent, big funds took the shares

Source: Bloomberg

On the flip side, hedge funds have been getting out. From 18 percent last summer, hedge-fund managers now account for less than 7.5 percent of Alibaba stock, according to the latest data.

Hedge-fund managers have taken notice of the economic weakness, the stock-market upheaval and an expensive arms race aimed at luring consumers to new services such as home delivery and car booking.

The turmoil has led to slowing profit growth, with sell-side analysts expecting Alibaba to post its biggest quarterly earnings decline since listing in New York in September 2014. Julian Robertson's Tiger Management liquidated its entire stake in the e-commerce provider after holding 3.1 million shares in June last year, Ye Xie and Sunny Oh of Bloomberg News reported.

With one pool of money doubling down and another heading for the exit, it's hard not to wonder who is right. Numbers may tell part of the story: Oppenheimer's Developing Markets Fund is down 16 percent over the past year, and while that performance beat its benchmark, it trailed 52 percent of its peers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Historical data aren't available for the No. 2 fund, Vontobel's Emerging Markets Equity Strategy Fund.

To contact the authors of this story:
Tim Culpan in Taipei at
Christopher Langner in Singapore at

To contact the editor responsible for this story:
Paul Sillitoe at

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