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Ant Group is headquartered in Hangzhou, in Zhejiang province of eastern China.
STR / AFP through Getty Images
Investors took a breather Monday from dumping shares
Alibaba Group holds
(ticker: BABA), the Chinese e-commerce giant under scrutiny against trust. The stock traded flat after slipping 13% in two sessions.
Danton Goei, global care manager at Davis Advisors, promises a reversal into 2021. “Government action does not significantly affect Alibaba’s prospects,” he said. “We think the stock is really cheap now.”
The price fall reflected official tensions around three related but specific entities: Alibaba; his sister finance company Ant Group, which suspended a last-minute IPO in early November; and co-founder Jack Ma. Of the three, Alibaba’s problems are the worst. A December 24 announcement from the State Administration for Market Regulation indicated that they were targeting the company “choose one from two” – ie force buyers to sell directly on Alibaba rather than competitors such as
JD.com
(JD) no
Pinduoduo
(PDD).
That should deal no more than a clean blow to the major e-commerce market, and leave growth industries like cloud computing completely unparalleled, Goei says. The most likely activity that authorities are pursuing, reducing down on loss leader prices, is falling in the same area.
Ant Group challenges are more dangerous. His IPO was slammed after authorities questioned his most profitable practice: starting consumer loans, then selling them to banks without risk, or capital, carrying on his own books. A second shoe fell this weekend when a central bank statement said Ant “had little legal knowledge and turned a blind eye to compliance requirements. ”
The regulator recommended the flytech high-flyer “return to origin” as a simple payment network. “The main concern of the regulators is that internet banking is out of control,” said Tracy Chen, portfolio manager for global credit at Brandywine Global.
Ma, who was recently a venerable figure of China’s online revolution, did no favors to his companies with “flaming behavior” as Chen puts it. He was famously mocking China’s major state banks for the “soldier shop mind” at a recent conference with the Party’s bigwigs, and has apologized half-heartedly, if at all.
Alibaba still owns a third of Ant Group. But its paper losses on the postponed IPO are more than the price of entering its own stock, Goei figures. Even if Ant gets the case down by half from the $ 300 billion valuation he was aiming for, that means a $ 50 billion drop in Alibaba ‘s bet. Alibaba’s market cap has lost more than $ 200 billion since the IPO deal.
Chinese regulatory concerns are likely to come in waves and shift from business to business, Goei notes. Shares in Alibaba co-behemoth
Tencent Holding
(700: Hong Kong) Depressed for much of 2019 when the government froze licenses for new video games, its biggest source of revenue. The ban was lifted, and Tencent gained nearly 40% this year.
There is a sense that there is a sense of broader movement against industry in Beijing ‘s obscure power fields, and Jack Ma ends up as “the chicken you kill to scare the monkey,” Chen says. But it is unlikely. Alibaba is now perhaps the largest employer in China, it is monitoring, and a respected national backer, once it has been shaken down to a slight size. “China ultimately wants to win the tech war, and Alibaba has to do it,” she says.
Then the argument is from evaluation. Raymond analyst James Aaron Kessler trades that Alibaba is trading at 16 hours expected 2021 earnings, strong for a company that grew 30% revenue and Ebitda 28% a year later year in the most recent quarter. “We are still buyers of BABA at the current levels,” he said.