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Analyzing Alibaba Group Holding Ltd (BABA)’s Brand Of Soap: Duncan Clark

Some industry observers may be saying that a bubble is about to burst in China but will Alibaba Group Holding Ltd (NYSE:BABA)’s stock be hit if this big correction occurs?

According to Duncan Clark, chairman and founder of BDA China, you have to look at which group of companies in China you are talking about as Alibaba Group Holding Ltd (NYSE:BABA) cannot be hastily grouped with all companies that are in the country.

In an interview with Emily Chang on Bloomberg West, Clark points out that the predicted bubble in China cannot be completely compared with the bubble that burst in 1999, 2000. He says that the bubble at the start of the new millennium saw companies not earning at all. Now, there is certainly more earnings being made, he says.

“However, there has been the massive appreciation [in stock price] as you have said [but] I think we should look at which kind of soap we are talking about. There are different brands of soap in this bubble. There is a domestic Chinese stock market and there we have a second board, the ChiNext in Shenzhen, which is massively overpriced, I think. We also have the Hong Kong shares which are increasingly linked to the mainland. And we have the New York-listed companies including obviously Alibaba. So you have to look at what you are talking about but overall, there has been a big run up, that’s for sure,” Clark tells Chang.

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As for overvalued shares, Clark says that in China, industry experts often group Baidu Inc (ADR) (NASDAQ:BIDU), Alibaba Group Holding Ltd (NYSE:BABA) and Tencent Holdings Ltd (HKG:0700) because of their massive market capitalizations. He implies, however, that this group is not often described as overvalued since they have multiple industries they have the potential of being disruptors in.

A company which may be deemed overpriced is Xiaomi, which Clarks points out has a private valuation of over $45 billion. That is an aggressive valuation, he adds, given that the world does not exactly know how the company will make more and more money going forward.

Clark says, however, that if the Chinese economy continues its path and consumer spending slows – add to this a steep rise in stock prices – companies may get hit.

Stanley Druckenmiller’s Duquesne Capital owned 253,900 shares in Alibaba Group Holding Ltd (NYSE:BABA) by the end of 2014. The Alibaba Group Holding Ltd (NYSE:BABA) stake, valued at about $26.39 million and is 2.58% of Duquesne Capital’s whole portfolio, increased a staggering 2,439% quarter over quarter.

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