Mastercard Moves One Step Closer to Accessing China's Payment Market

Mastercard (MA) announced this morning in a press release, here, that it has received in-principal approval from the People's Bank of China (PBOC) to begin formal preparations to set up a domestic bankcard clearing institution in China through its joint venture with NetsUnion Clearing.

This important announcement provides confirmation to our view that Mastercard is one of the winners of the Phase One trade deal (see here), which called on China to open up its financial services markets to U.S. companies. This news adds a layer of credibility into the agreement at a key point in time because China's top priority right now is battling the spread of the coronavirus.

China has a $27 trillion payment market, according to a Bloomberg article, here, and Mastercard is keen on getting a piece of that action as soon they can. Within one year Mastercard can apply to the PBOC for formal approval to begin domestic bankcard clearing activity. Due to this timeline, the announcement does little in terms of raising current year revenue/earnings estimates. However, by China opening up its doors to Mastercard will increase the total addressable market for the company, and that's what investors like to see with an already pricey stock that trades at ~37x consensus 2020 earnings per share estimates.

After initially touching a new record intraday high of more than $335 this morning, the stock has trailed off a few dollars but remains in right around record-close territory.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long MA.