A wager by the Ontario Teachers' Pension Plan on Beijing-based online retailer JD.com is paying off in a big way.
Their $141-billion ($129-billion U.S.) retirement fund bought about 44 million of the then-privately held company's shares in November 2012 for $175-million, according to a May filing with the U.S. Securities and Exchange Commission. By the end of June, after JD.com went public in the U.S. and its stock soared, the investment's value more than tripled to $630-million, a separate filing made Aug. 14 with the SEC showed.
The Ontario Teachers' Pension Plan's investment is part of a growing trend that's seen oversees asset managers, from Singapore's Temasek Holdings Pte to Baltimore-based T. Rowe Price Group Inc., scoop up stakes in Chinese e-commerce operators to benefit from surging online shopping in the world's largest pool of Internet users. JD.com's shares gained 2 per cent as of 2:13 p.m. in New York, bringing its advance since its May debut to 59 per cent.
"It's a clear positive that JD has the support of sophisticated investors with deep emerging markets experience," Eric Brock, who helps oversee about $4.6-billion as a Boston– based portfolio manager at Clough Capital Partners, said by e– mail Aug. 15. "JD is investing in a big market. Having the support of large, long-term investors will be very helpful as they create value."
Ontario Teachers' Pension Plan spokeswoman Deborah Allan declined to comment on what the asset manager has done with its JD.com 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 Amazon.com Inc., 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 ($102-billion U.S.) in the April-June period, surpassing 10 per cent of the nation's consumer goods spending, according to data from Shanghai-based Internet consultant IResearch. Online shopping may reach 16 per cent of retail sales by 2017, driven by increased mobile purchases.
JD.com'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 $4.6-billion, the company said Aug. 15.
Hangzhou-based Alibaba Group Holding Ltd., which may debut in New York as soon as next month with the biggest IPO in U.S. history, said in June that net income rose to about 23.1 billion yuan ($3.7-billion) in the 12 months through 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," David Riedel, president and founder of Riedel Research Group in New York, said by e-mail Aug. 14. "Details coming out of the reports and filings leading up to the Alibaba IPO have highlighted to investors the strong trends in e– commerce in China."
Los Angeles-based Capital World Investors owns 11.9 million of JD.com's ADRs, or about $340-million as of June 30, while Temasek, Singapore's state-owned investment firm, added a $17.2-million stake. Baltimore-based money manager T. Rowe Price increased its position in Guangzhou-based online fashion retailer Vipshop Holdings Ltd. to 7.1 per cent in the second quarter, according to filing data compiled by Bloomberg.
Vipshop has soared 162 per cent this year, second among the 79 members of the Bloomberg China-US Equity Index. The gauge added 1.2 per cent to 117.04, after rising 2.1 per cent last week.
The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., gained 0.7 per cent to $41.38.
The Hang Seng China Enterprises Index, also known as the H– share index, fell 0.4 per cent to 11,065.21, while the Shanghai Composite Index rose 0.6 per cent to an eight-month high of 2,239.47.
JD.com has further to climb, according to 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 in an Aug. 15 e-mailed response to questions. "Gross margin expansion also appears encouraging, and we think there is further upside."