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Can a major South Korea investment boost the Alibaba share price?

AliExpress has poured ₩10bn South Korean won into lowering its prices in South Korea in a bid to capture market share in the world’s sixth-largest ecommerce market. Meanwhile, China’s online sales market may be peaking, with this year’s Singles Day seemingly lacklustre.

- Alibaba’s international arm is pouring ₩10bn into Korean expansion

- Company’s landmark shopping event Singles Day appears to be stagnating

- ProShares Online Retail ETF and Amplify Online Retail ETF offer exposure

Alibaba [BABA] is pouring around ₩10bn ($7m) into an effort to establish its international ecommerce arm, AliExpress, in South Korea. The unit told CNBC that it has spent the money in an effort to lower its prices and gain a foothold in one of the world’s most lucrative ecommerce markets.

While the US currently dominates the $4.5bn of international ecommerce purchases made in South Korea, companies from other jurisdictions, particularly China, are intent on making headway.

Between January and September, the number of South Korean devices with the AliExpress app installed rose to 2.7 million, up from a 2.2 million reporting in January, according to a report from Korean analytics company TDI. According to data from the Organisation for Economic Co-operation and Development (OECD), 99.7% of Korean households had internet access as of 2020.

AliExpress was already among the top five international ecommerce sites used by South Koreans as of August 2021, and the recent investment in reducing prices and improving delivery times will position it to take a larger stake of this important ecommerce market.

With Alibaba’s share price declining 29% in the year to 17 November, investors will be hoping that the move pays off.

Chinese market in decline

China’s own ecommerce retail market is in decline. Pandemic-related disruptions to logistics and supply chains hit Alibaba’s domestic sales by 2% year-over-year in the quarter to 30 June this year. The landmark shopping event, Singles Day, saw a 4.7% decline during the first 12 hours of the final day, according to Chinese consultancy firm Syntun.

While Alibaba, for the first time, didn’t disclose the final sales figures immediately following Singles Day, it said they were “in line” with 2021’s, suggesting that the mammoth sales event has, at best, stalled its growth.

According to Deborah Weinswig, CEO and founder of Coresight Research, Singles Day’s lacklustre performance this year is tied into China’s weakening retail market and the country’s broader economic challenges, including “declining consumer confidence, [China’s] unrelenting zero-Covid policy, and the uncertain macroeconomic environment”. Increasingly heavy-handed government regulation of technology companies is also hurting ecommerce companies in China.

Is South Korea the future?

It is for this reason that Alibaba, and competitors such as Pinduoduo [PDD] and ByteDance are looking beyond their home markets. South Korea is the sixth-largest ecommerce market in the world, generating $92bn in annual revenue.

Among AliExpress’s competitors for the South Korean ecommerce market are Ocado Group [OCDO.L], which recently announced a lauded partnership with Korean retail giant Lotte Shopping [023520.KS]. The deal highlights the importance of South Korea as an ecommerce market, with 20% of grocery sales in the country made online, compared to 11% in the UK.

Analysis from eCommerceDB, however, suggests that growth of South Korea’s ecommerce market will slow down, from 14% between 2020 and 2021 to 5% between 2021 and 2025. With 68% of the South Korean population having bought at least one product online in 2021, the market could be approaching saturation.

Nevertheless, the sector’s global prospects look brighter. An 11 November report from Polaris Market Research predicts the global cross-border business-to-customer (B2C) ecommerce market will grow at a compound annual growth rate (CAGR) of 26.2% to 2030, reaching a size of $5,154.16bn.

Funds in focus: ProShares Online Retail ETF

The challenging global conditions that have followed Russia’s invasion of Ukraine have caused the ProShares Online Retail ETF [ONLN] to fall 45.75% in the year to 17 November. Alibaba is the fund’s second largest holding with a 12.20% weighting as of 30 September. Pinduoduo is the eighth largest holding with a ​​4.21% weighting.

The Amplify Online Retail ETF [IBUY] fell 50.8% in the year to 17 November. Alibaba makes up a much smaller percentage of the fund with a 1.11% weighting as of 17 November.

Both funds received a boost on 10 November as US stocks were buoyed by news of lower-than-expected US inflation, driving the ProShares Online Retail ETF to gains of 4.5% over the past month. The Amplify Online Retail ETF saw a 9.7% increase over the same period.

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