5 reasons not to participate in Alibaba’s IPO

Genevieve Signoret

Letter from the President

I am not recommending to clients that they participate in Alibaba’s initial public offering, for five reasons:

1. Our clients already have considerable exposure to China. We have taken substantial long positions for all our clients in commodities, an asset class especially sensitive to fluctuations in China’s economy.  For clients with investment horizons longer than two years, through funds we have bought stock in thousands of companies that trade with China. Many even have operations there.  Also, we’ve made sure that our clients whose investment horizons exceed five years hold emerging market equity through a fund that’s dominated by Chinese stocks.
2. Our clients also have considerable exposure to the IT industry.
3. Indirectly, our clients already own Alibaba (NYSE: BABA), because they own, through one or more ETFs, stock in Yahoo! (NYSE: YAHOO). Yahoo! holds a 23% stake in Alibaba.
4. We prefer funds over individual corporate securities. We view concentration in any corporate security as unnecessarily risky.
5. In an IPO, share prices are not set in a transparent fashion in a dense, competitive market.

Previous Letters from the President

2014–2016 Outlook: Low for long (2014 08 29)

Should you sell your business? (2014 08 15)

It’s the benign sort of volatility (2014 08 08)

Low for Long, Loans to Kids (2014 08 01)