A Mid-Cap E-Commerce Play on the Coming Boom in Southeast Asia One of the big themes of 2022 has been deglobalization.
That is, ever since Ronald Reagan strongly pushed the concepts of free markets and open trade in the 1980s, the global economy has embarked on a 40-year journey of ever-expanding globalization. And U.S. and European companies have outsourced production to countries with cheaper labor, like China.
However, the COVID-19 crisis and Russia-Ukraine war have disrupted global supply chains in a way that’s undermined production security. In response, many countries are pulling their production out of China and looking to build more secure supply chains elsewhere.
Lots of investors interpret this deglobalization to mean that production is coming back to America. That’s a misconception. The so-called “Americanization” of global production isn’t really happening because U.S. labor is far too expensive for mass production.
Rather, instead of moving stateside, U.S. companies are shifting production out of China and into the next cheapest options: Southeast Asia and India.
Just last month, it was reported that Apple (AAPL) – the world’s largest company and largest maker of consumer electronics – is looking to shift 30% of Chinese production to Southeast Asia.
Consequently, we think this whole deglobalization movement will actually create an enormous economic boom in Southeast Asia.
Consider this: GDP per capita in Thailand is $7,300, just 10% that of U.S. GDP per capita. In Vietnam, the Philippines, and Indonesia, GDP per capita is between ~$3,500 and ~$4,500 – meaning GDP per capita in all three countries is less than 7% of U.S. GDP per capita.
Given those abysmally low figures, there’s ample opportunity for the Southeast Asian economy to grow by leaps and bounds for many years to come if, indeed, big U.S. companies follow Apple and shift a ton of production into Vietnam, Thailand, the Philippines, Indonesia, and more.
Of course, if those countries do experience an economic renaissance in the 2020s, the stocks levered to those booms will see huge returns over the next three, five, and 10-plus years.
Here’s the thing: Southeast Asia doesn’t have an Alibaba (BABA) or WeChat… yet. So much like China in the mid-aughts, Southeast Asia is very much up for grabs.
That could mean big things for the Chinese e-commerce company Vipshop (VIPS), which bought its way into the Southeast Asian economy a few years ago with Ensogo (previously known as LivingSocial).
Based out of Guangzhou, Guangdong, China, the company was founded by Eric Ya Shen and Arthur Xiaobo Hong, who act as CEO and COO, respectively.
In the most recent quarter, total net revenues clocked in at 24.5 billion RMB, while gross merchandise volume was $40.6 billion, down from $48.1 billion in the year prior.
Its customers, too, have been on the downswing after soaring around the pandemic. In the past quarter, VIPS reported active customers of 41.7 million vs 51.1 million in the year-ago period.
That said, we really like the opportunity that’s ahead in SE Asia over the next five-plus years. We’re looking at a shift in global production to the region that will spark an economic renaissance throughout this decade and beyond. The implications of that will reverberate to ecommerce players in China who have broadened their reach to service the SE Asia area.
Let’s look at the chart: 
So, does this meet my team's strict “Stage-2” criteria?
Here’s what we’re seeing: - The red descending channel shows a Stage-4 decline that ended around November of 2021.
- The yellow, horizontal trendlines shows a Stage-1 basing channel that lasted for roughly nine months.
- It’s shown consistently heavy volume throughout Stage-1 and hasn’t meaningfully spiked yet into Stage-2.
- VIPS’ stock chart shows a long basing period with some prominent air gaps.
- The green ascending channel shows more potential upside to come.
- The stock recently surpassed the upper band of resistance in the basing area.
- It looks very possible that it could break out into Stage-2 in a meaningful way.
When it comes to production, the end of China means the birth of Southeast Asia. That’s how we see things. To that extent, we think Southeast Asia represents a really compelling economic opportunity in the 2020s. We’re looking for strong bets on this economic renaissance. VIPS fits the bill. But whether it breaks out meaningfully into Stage-2 remains to be seen. Don’t bet the farm on this name. But taking a small stake could make a lot of sense because if management executes on the vision, a small stake could be worth a ton in just a few years.
To find out whether this stock (or another) meets my criteria for a Stage-2 play, tune into my Rapid Cash Flow event Wednesday, Aug. 31, at 4 P.M. Eastern.
Can’t wait to see you there! Sincerely, |
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