China Rich List Hints At Tech Bubble
The headlines are buzzing today about the latest Hurun Report listing the richest people in China, which has a decidedly tech flavor this year that hints at trouble ahead for the overcharged Internet sector. The report has become a gold standard for gauging the latest business trends in China, but is also famous for focusing on industries that have become overheated. That’s not too surprising, since it’s often such overheating that leads to huge surges in company share prices, which are most often the main foundation for calculating individuals’ wealth. This year half of the top 10 richest men in China come from the tech sector.
All 5 of these tech titans have become household names for many Chinese, led by the charismatic Jack Ma, founder of the newly listed e-commerce titan Alibaba (NYSE: BABA), whose personal fortune worth $25 billion makes him China’s new richest man. (English article; Chinese article) Jack Ma is followed by Internet archrival Pony Ma, chief executive of social networking giant Tencent (HKEx: 700), whose fortune worth an estimated $17.6 billion makes him China’s fifth richest man.
The other 3 tech executives in the top 10 are: Robin Li, chief executive of search leader Baidu (Nasdaq: BIDU), whose fortune worth $17 billion makes him China’s 6th richest man; Richard Liu, chief executive of recently listed e-commerce giant JD.com (Nasdaq: JD), whose $8.6 billion net worth makes him the nation’s 9th richest man; and Lei Jun, co-founder and chief executive of smartphone sensation Xiaomi, who was China’s 10th richest man with a personal fortune worth $7.3 billion.
Perhaps more revealing than the actual monetary figures was how much each of the tech executives’ fortunes has grown over the past year. That growth is mostly due to huge surges in share prices for the listed companies, and new listings for companies like Alibaba and JD.com that have pushed their valuations up to stratospheric levels. All of the tech executives except for one saw their net worth more than double in the past year, with Richard Liu topping the gains with an 8-fold increase in the value of his fortune. The only tech executive who didn’t see his net worth double was Tencent’s Pony Ma, whose fortune still grew by a considerable 75 percent.
That means all these tech companies except for Tencent have more than doubled in value over the past year, and in some cases have grown by much more. To put that in perspective, the tech-heavy Nasdaq Composite Index is up by about 20 percent over the last 52 weeks, while the Hang Seng Index, which closely follows China’s economy, is up just an anemic 3 percent over the period.
Some of the huge run-ups in valuations are probably justified since most of the China tech stocks languished for the previous 2 years after a series of accounting scandals at several firms undermined confidence in the entire sector. What’s more, China’s e-commerce and social networking sectors — 2 of the main growth engines for most of the big tech companies — have seen explosive growth over the past year fueled by the rapid rise of the mobile Internet in China.
So, what’s an investor to make of all this information, including the huge wealth suddenly accumulated by these tech executives? In the past no one wanted their name to appear on the Hurun list, after several such high-profile executives found themselves in trouble with the law after such appearances. That stigma seems to have faded in recent years, and I doubt we’ll see Jack Ma or Robin Li in legal trouble anytime soon. Still, investors could easily start to wonder if perhaps these tech legends have become just a little too rich, and I do suspect most of these high-flying stocks will be due for some corrections in the 20-30 percent range over the next year.
Bottom line: The dominance of tech executives among China’s richest men reflects excessive valuations of many Chinese Internet firms, making them candidates for a significant correction in the next year.
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