WEBVTT - KraneShares' Ahern on Alibaba Earnings, Stock Buyback (Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>I'm Charlie Pellett's stocks are trading higher. Heading for records

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<v Speaker 1>global equities. Macy's, for example, surging eighteen point six percent

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<v Speaker 1>tenths of one percent to fifty two thirty two. The

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<v Speaker 1>tenure down twenty two thirty seconds that yield one point

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<v Speaker 1>five seven percent, Gold down three sixty the ounce three

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<v Speaker 1>dropped there of three tenths of one percent, and crude

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<v Speaker 1>oil up four percent today to Barrel. I'm Charlie Pellets

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<v Speaker 1>and that's a bloom Bird business flash. You're listening to

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<v Speaker 1>Taking Stoff with Kathleen Hayes and Kim Fox on Bloomberg Radio.

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<v Speaker 1>Ali Baba on fire today. It looks like jack Ma's

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<v Speaker 1>diversification strategy is starting to pay off, as revenue at

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<v Speaker 1>Ali Baba Group Holding accelerates to the fastest since its

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<v Speaker 1>record initial public offering share price of five dollars and

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<v Speaker 1>thirty four cents right now ninety two dollars and sixties

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<v Speaker 1>six cents. And we're very happy to welcome back Brendan Hearn.

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<v Speaker 1>He's chief investment officer at Crane Shares. Ali Baba is

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<v Speaker 1>the number one position of Crane Shares c s I

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<v Speaker 1>China Internet et F ticker symbol k w EB just

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<v Speaker 1>rated five stars from Morning Star and as Brendan Nister

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<v Speaker 1>minus or the last three years, they've beaten the SMP

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<v Speaker 1>five hundred by holding Chinese stock, So welcome back, Thank you, Cather. So,

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<v Speaker 1>first of all the news on Ali Baba. What did

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<v Speaker 1>we find out today? Three key takeaways? Some of the

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<v Speaker 1>parts companies buying back stock and lastly the cloud computing.

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<v Speaker 1>So some of the parts. What I mean is Ali

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<v Speaker 1>Baba is breaking out the different divisions for the first time,

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<v Speaker 1>we're able to apply a growth rate. Analysts are going

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<v Speaker 1>to be upgrading this stock over the next several days,

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<v Speaker 1>I believe, based on aggregating these different divisions. UM secondarily

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<v Speaker 1>was buying back stock over five billion dollars. And lastly,

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<v Speaker 1>they're cloud computing is about to go profitable uh fousand

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<v Speaker 1>paying customers and as we've seen with Amazon with a WS,

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<v Speaker 1>the ability to drive that drive the stock potentially significantly higher.

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<v Speaker 1>Why the buying back stock? Why do that? I mean,

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<v Speaker 1>if you're a young company and you're supposedly a tech company,

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<v Speaker 1>why can't they invest that money in things that will

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<v Speaker 1>grow in the future buy back the stock. All it

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<v Speaker 1>ends up doing is making the earnings look better mathematically

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<v Speaker 1>because you take the shares out of circulation and stick

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<v Speaker 1>him in the treasury. That that's a valid point of

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<v Speaker 1>him UM. At the same time, the stock has been

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<v Speaker 1>affected by broad China news. Last summer's Onshore equity market

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<v Speaker 1>rolled over. Ali Baba has nothing to do with the

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<v Speaker 1>Shanghai and shenz En stock exchanges, but the stock came down,

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<v Speaker 1>but they got a lot to do with how business

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<v Speaker 1>in China is doing well. Look at this past January

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<v Speaker 1>where the implementation the circuit breaker affected, uh, the onshore

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<v Speaker 1>equity market Shanghai Shen's and Ali Baba stock got crushed.

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<v Speaker 1>So you you have investors the Ali Baba baby goes

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<v Speaker 1>out when when the China water gets thrown out, and um,

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<v Speaker 1>there's there's Ali Baba has nothing to do with with

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<v Speaker 1>the Chinese stock market. It's so then why list there?

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<v Speaker 1>So go ahead and just list here in the United States.

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<v Speaker 1>So list in London, list somewhere outside of China. I mean,

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<v Speaker 1>there are a lot of ways to accomplish what you're

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<v Speaker 1>talking about without buying. It just seems odd when you're

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<v Speaker 1>talking about a growth company, a tech company, doesn't it

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<v Speaker 1>kind of make you question, g don't they have anything

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<v Speaker 1>better to do with that five billion? Well, and I

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<v Speaker 1>think you know you I p O was priced at

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<v Speaker 1>sixty eight dollars, It got up to one twenty, it

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<v Speaker 1>came all the way back down below seventy. The stock

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<v Speaker 1>you're talking about a company that's growing the top line

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<v Speaker 1>at over thirty percent. Me in here were one quarter

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<v Speaker 1>you know, long term growth rate over this stock was

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<v Speaker 1>just so inexpensive that I think the management bought it.

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<v Speaker 1>I love that that that the company is buying back

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<v Speaker 1>to stock and that the the CEO and the management team.

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<v Speaker 1>UM is on the same time of the same side

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<v Speaker 1>of the table as me as an investor talk to

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<v Speaker 1>us about cloud computing. When I, you know, I think

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<v Speaker 1>we will think of the competition and people trying to

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<v Speaker 1>get and you think of Microsoft, Do you think of Amazon?

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<v Speaker 1>I don't know if Ali Baba is the first name

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<v Speaker 1>that comes to a lot of minds, what are they

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<v Speaker 1>doing there? And why is that impressed analysts? What you say,

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<v Speaker 1>are gonna upgrade Ali Baba? Now, yep, no, certainly, UM

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<v Speaker 1>Ali Bamba is the primary businesses is in China basically

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<v Speaker 1>selling to Chinese companies themselves, and and what they're looking

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<v Speaker 1>to do is to take advantage of the very very

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<v Speaker 1>advanced kind of technology ecosystem in China. Just as kind

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<v Speaker 1>of Amazon is really you know, competing with Microsoft and

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<v Speaker 1>others and with their AWS division, Alibaba is basically bringing

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<v Speaker 1>that playbook to China. They've had a great level of

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<v Speaker 1>success in a short period of time, over five thousand

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<v Speaker 1>paying clients. UM it's it's it's about to start to

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<v Speaker 1>hit an inflection point where it's going to be monetized,

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<v Speaker 1>and the company guided that they believe they can have

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<v Speaker 1>over a million million paying customers within a year. Ali

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<v Speaker 1>Baba is not just in the delivery business, right, They're

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<v Speaker 1>not just a broker products and services. They're trying to

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<v Speaker 1>get into a lot of other businesses. Do you foresee

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<v Speaker 1>a time when they're going to split those businesses off

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<v Speaker 1>into separate units? Well think to some degree. And financial um,

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<v Speaker 1>which is the equivalent of say like a PayPal um.

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<v Speaker 1>It's it's I would argue, it's beyond what PayPal. It's

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<v Speaker 1>ubiquitous in China. Uh it used to be called ali

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<v Speaker 1>pay and and and financial um. Ali Baba has a

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<v Speaker 1>thirty eight percent ownership position that's going to go public.

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<v Speaker 1>I believe in probably about a year's time listening exchange

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<v Speaker 1>to be determined. UM. But but I do think and

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<v Speaker 1>and coming out UM was part of the value that

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<v Speaker 1>some of the parts idea. So in terms of growth

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<v Speaker 1>are Bloomberg News story points out that you know you

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<v Speaker 1>can they they are the may the big thing in China,

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<v Speaker 1>but they've got still got growth in users, big growth

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<v Speaker 1>in users. Yeah, I mean one of the one of

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<v Speaker 1>the statistics I love is the utile is Internet utilization

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<v Speaker 1>right here in the United States is nearly we would

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<v Speaker 1>over fifty percent in two thousand two. China just went

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<v Speaker 1>over fifty percent utilization Amazon stock. Back in two thousand two,

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<v Speaker 1>when the U S went over fifty percent, utilization was

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<v Speaker 1>at six dollars. So unless you have a DeLorean out front,

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<v Speaker 1>you're able to get into um China internet and e

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<v Speaker 1>commerce companies UM at basically at a fifty percent, and

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<v Speaker 1>that that numbers are only going to go higher. And

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<v Speaker 1>that's why we're quite bullish, and that's self serving and

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<v Speaker 1>highly biased. But as Somaly, as a shareholder myself, I'm

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<v Speaker 1>a big believer in k Web. Now, the position that

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<v Speaker 1>you hold in ali Baba is not a reflection of

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<v Speaker 1>an actively managed decision making process. Correct, So how do

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<v Speaker 1>you foresee the role of ali Baba in an index

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<v Speaker 1>when it is so dominant a position? Well, ali Baba

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<v Speaker 1>is certainly a big, big beneficiary of what we believe

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<v Speaker 1>is with the top down policy, where where China's economy

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<v Speaker 1>as a barbell, you have export driven manufacturing adversely affected

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<v Speaker 1>by tep global growth. Global growth at the same time

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<v Speaker 1>domestic consumption is doing very well in China so well

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<v Speaker 1>as much as um I love Ali Baba, Um, I

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<v Speaker 1>love ten Cent, ten Cent, the Facebook of China with

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<v Speaker 1>their reach out application. I love c Trip, the the

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<v Speaker 1>c Trip business a monopoly on online travel in China.

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<v Speaker 1>Say they bought two of their largest the number two

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<v Speaker 1>and number three players. They have a monopoly. Um, there's great.

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<v Speaker 1>J D dot Com just reported a few days ago

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<v Speaker 1>Great Great earnings Sina and Wi bo Um Great earnings.

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<v Speaker 1>That this is the top down macro issue, and that's

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<v Speaker 1>where we love the basket approach. We love diversifying. Tell

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<v Speaker 1>me about the top john macro. Great. Obviously, there's plenty

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<v Speaker 1>of Chinese consumers, workers, people are making money. We know

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<v Speaker 1>a large part of China is still a poor country.

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<v Speaker 1>And you know they had a slow down. And again

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<v Speaker 1>I think the big industrial production numbers out of China

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<v Speaker 1>tonight that's and pulling back a bit. So it's so fascinating,

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<v Speaker 1>isn't it that I guess only the only part of

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<v Speaker 1>China's economy to do well to spur this kind of

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<v Speaker 1>growth for a company like Ali Bab, And you can

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<v Speaker 1>only manage what would happen if the rest of the

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<v Speaker 1>country could kind of digive itself out of poverty. Well, certainly,

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<v Speaker 1>China of the population lived in cities today. It's that

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<v Speaker 1>correlation is one between GDP per capita and China's urbanization,

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<v Speaker 1>the movement of people into cities UM in China, proper housing, UM,

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<v Speaker 1>access to healthcare, education, the becoming a middle class. And

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<v Speaker 1>then there's there's third definition of middle class. So certainly,

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<v Speaker 1>you know, there are liabilities on the China balance sheet,

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<v Speaker 1>but at the same time, there's a there's assets, and

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<v Speaker 1>we believe that there are concerns around mpls and banks

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<v Speaker 1>and the X what's going to happen with overcapacity and

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<v Speaker 1>coal stealing Alunum. Yes, what, I don't want to hold them.

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<v Speaker 1>I want to hold the part of China that is

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<v Speaker 1>growing and we get industrial production tonight, Kathleen, I'll be

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<v Speaker 1>up on my terminal, but we to get retail sales.

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<v Speaker 1>And retail sales has averaged ten month. You know, the

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<v Speaker 1>monthly number for July. I think it's going to be

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<v Speaker 1>a really number year over year, so it's pretty amazing

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<v Speaker 1>off of the month. That's true. That's true, Um, But yeah,

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<v Speaker 1>we know we love the retail sales and in China

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<v Speaker 1>where your smartphone is your primary source of entertainment and

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<v Speaker 1>increasingly et commerce. UM cell phones in China are very

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<v Speaker 1>very big for a reason because they spend a lot

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<v Speaker 1>of time on them, and certainly we see more as

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<v Speaker 1>Ali Baba demonstrated today, there's there's there's something going on

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<v Speaker 1>in China. I think that narrative is very early in

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<v Speaker 1>it being told. Thank you very much for coming in

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<v Speaker 1>and spending time with us. Brendan Hearn is the chief

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<v Speaker 1>investment officer for Crane Shares. It can be followed on

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<v Speaker 1>Twitter at crane Shares That's with a K and talking

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<v Speaker 1>about Ali Baba reporting results that exceeded analyst estimates. Some

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<v Speaker 1>say it is a stellar report card, reporting quarterly results

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<v Speaker 1>that beat estimates on all fronts. Sales during the last

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<v Speaker 1>quarter grew fifty nine percent, the fastest growth since it

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<v Speaker 1>was listed in New York in twenty fourteen. This is

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<v Speaker 1>taking Stockheim pim Fox along with my co host Kathleen Hayes.

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<v Speaker 1>This is Bloomberg