What Jack Ma Thinks Will Drive The Hong Kong Crisis

Includes: AMZN, BABA
by: Dana Blankenhorn


See Alibaba as a proxy for China as the Hong Kong crisis continues.

CEO Jack Ma has said he will keep money in China, not move it to Hong Kong.

Use options on Alibaba to bet on the crisis' outcome.

Those looking for a hint on how the Hong Kong crisis will play out need only look at shares of Alibaba (BABA).

So far, they're down about 5.4% from their public opening, opening trade on October 1 at $88. [Amazon.com (AMZN)], by way of comparison, is down 2.7% from that date.) Mr. Ma, who is from Hangzhou (formerly Hangchow), which is southwest of Shanghai, has said nothing about what is going on across the border.

His one important remark, made on the day the stock opened, was that he had no plans to leave China for Hong Kong, or move his money there.

That's an important endorsement for the government of Xi Jingping. Mr. Xi is desperate to assert greater central control over all aspects of what is happening in China. The events in Hong Kong, where demonstrators are demanding not just the ability to vote but to vote for candidates of their choice, is the first big threat to that power.

But what's happening in the streets is not nearly as important as what is happening in the suites. Thousands of newly-minted Chinese millionaires keep their money in Hong Kong, as opposed to banks based in China. Should Xi send in troops, that money will fly away. It will go to London, to New York, and to Vancouver, Canada. The people who made it will be smuggled out, no matter how Xi tries to stop them. Xi has called on expatriate businessmen to return. He has called them criminals, and no doubt some are. But if he cracks down on Hong Kong, the present trickle of people and money out of the country will become a tsunami.

Ma's decision goes against the grain of recent trends among China's wealthy - one foot in Hong Kong and another overseas - and his decision to stay is likely to be decisive for the hundreds of new millionaires created by the Alibaba float.

The question is, will Ma keep his mouth shut and his money in Shanghai if Xi moves to crush the demonstrators? Can Alibaba continue to grow if its best and brightest flee the country?

The government's efforts to limit news of what's happening in Hong Kong is meaningless to its financial elite. They know precisely what is going on. Chinese freedom is, in fact, a continuum, in that as your money and education rise, your ability to know the truth of things rises in proportion. Peasants and the poor are kept entirely in the dark. Educated elites learn how to jump the Great Firewall. Millionaires get routine access to news in order to run their businesses.

Those who believe that the Hong Kong demonstrators will get what their mothers and fathers got in Tiananmen Square 25 years ago - a violent crackdown - can bet on that outcome by buying options on Alibaba stock going down. Those who think that a solution will be found short of violence can buy options betting on Alibaba stock going up. Another way to play: bet on Amazon rising as you bet on Alibaba falling. In the event of violence, the stocks are likely to go in opposite directions.

Those who want to know which way the wind blows need to keep an eye on the little man whose people rang the bell at the NYSE two weeks ago.

Disclosure: The author is long AMZN.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.