Ontario teachers hit jackpot with bet on

Retirement fund's purchase marks growing trend by asset managers to buy stakes in Chinese e-commerce firms to tap online shopping boom

PUBLISHED : Tuesday, 19 August, 2014, 1:27am
UPDATED : Tuesday, 21 April, 2015, 11:26am

A wager by the teachers of Ontario, Canada, on Beijing-based online retailer is paying off in a big way.

Their C$141 billion (HK$1 trillion) retirement fund bought about 44 million of the then privately held company's shares in November 2012 for US$175 million, according to a May filing with the United States Securities and Exchange Commission. By the end of June, after JD went public in the US and its stock soared, the investment's value more than tripled to US$630 million, a separate filing made on Thursday showed.

The Ontario Teachers' Pension Plan's investment is part of a growing trend that has seen overseas asset managers, from Singapore's Temasek Holdings to Baltimore-based TRowe Price Group, scoop up stakes in Chinese e-commerce operators to benefit from surging online shopping in the world's largest pool of internet users.

JD's shares gained 4.3 per cent last week, bringing their advance since the stock's May debut to 56 per cent.

"It's a clear positive that JD has the support of sophisticated investors with deep emerging-market experience," said Eric Brock, a portfolio manager at Clough Capital Partners. "JD is investing in a big market. Having the support of large, long-term investors will be very helpful as they create value."

The Ontario Teachers' Pension Plan's spokeswoman Deborah Allan declined to comment on what the asset manager has done with its JD shares since the end of June.

The Toronto-based fund's 2.03 per cent stake in the online retailer, which has a business model similar to that of makes it the company's largest equity holder among external investors tracked by Bloomberg.

China's e-commerce sales increased 47 per cent to 629 billion yuan (HK$792.4 billion) in the April-June period, surpassing 10 per cent of the country's spending on consumer goods, data from Shanghai-based internet consultant iResearch showed. Online shopping may reach 16 per cent of retail sales by 2017, driven by increased mobile purchases.

JD's gross merchandise volume, the value of all goods sold on its website, jumped 107 per cent in the second quarter from a year earlier as revenue surged 64 per cent to US$4.6 billion, the company said last week.

Hangzhou-based Alibaba Group Holding, which may debut in New York as soon as next month with the biggest initial public offering in US history, said in June that net income rose to about 23.1 billion yuan in the 12 months to March from 8.4 billion yuan a year earlier.

"People are clearly looking for ways to play this tremendous growth and this is creating demand for Chinese e-commerce plays," said David Riedel, president and founder of Riedel Research Group in New York.

"Details coming out of the reports and filings leading up to the Alibaba [listing] have highlighted to investors the strong trends in e-commerce in China."

Los Angeles-based Capital World Investors owns 11.9 million of JD's American depositary receipts, or about US$340 million by June 30, while Temasek, Singapore's state-owned investment firm, added a US$17.2 million stake.

Money manager TRowe Price increased its position in Guangzhou-based online fashion retailer Vipshop Holdings to 7.1 per cent in the second quarter.

Vipshop has soared 161 per cent this year, second among the 79 members of the Bloomberg China-US Equity Index. The gauge added 2.1 per cent last week to 115.63 points.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the US, added 1.4 per cent to US$41.07. The S&P 500 Index rose 1.2 per cent. The H-share index climbed 2.5 per cent to 11,103.92 points in Hong Kong last week, while the Shanghai Composite Index gained 1.5 per cent to 2,226.73 points.

JD, known as 360buy Jingdong until January, had further to climb, said Ella Ji, an analyst at Oppenheimer & Co in New York.

The company's gross merchandise volume growth "is very impressive, considering its already vast size", Ji said. "Gross margin expansion also appears encouraging, and we think there is further upside."