Alibaba Executive Chairman Jack Ma
Photos by Michael Loccisano / Getty
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As the year draws to a close, global investors face more risks associated with China, even as the country offers long-term opportunities.
No one had a harder memory of the truth last week than Jack Ma, founder of billions Chinese e-commerce giant
Alibaba Group holds
(ticker: BABA), how the Chinese government decided on Christmas Eve to seize the sprawling and highly successful industry.
Beijing launched an investigation into Alibaba, and Ant Group, the company’s finance unit, was called to meet with banking watchdogs to discuss financial rules. In other words, Alibaba must play by Chinese rules.
U.S.-listed Alibaba shares were hit by the news, falling 13.3% on Dec. 24 to $ 34.18. That’s the biggest daily percentage decline since the company went public in 2014, and is offset by a 30% drop from the stock’s late-October peak. “It’s too much,” Raymond James analyst Aaron Kessler said of Thursday’s sale, adding that shares are still strong buyers.
Shares are up almost 5% so far this year.
Alibaba’s infiltration is very different from how the shares of U.S. tech giants threaten the ongoing threat from anti-trust allegations in recent years.
Sections of
Alphabet
(GOOGL), Google’s parent, is up about 13% from Oct. 19, the day before the Department of Justice and various states filed a lawsuit accusing Alphabet of operating an illegal monopoly. The Nasdaq has collected 11% in the same race. Sections of
Facebook
(FB) is down about 4% since Dec. 9, when the company was hit by a similar lawsuit. Facebook has gained about 30% a year so far, and Alphabet is up 29%.
Investors seem to be betting that nothing will come of the U.S. lawsuit – or that the biggest U.S. tech companies might be worth as much, or more, if they break up. In China, however, the government is the law. If it has a problem with Alibaba, Alibaba has a problem.
China is not only targeting Alibaba – they are also targeting Ma, which controls Ant Financial, which was awarded an initial $ 34 billion public offering planned for its last month after the agreement went awry from the Chinese authorities. Alibaba and Ant said in separate statements that they would cooperate with regulators.
China released draft antimonopoly rules last month, designed to resume in major internet companies. Regulators are now looking into Alibaba’s use of banning arrangements with buyers who sell on their e-commerce platform, preventing them from operating through competitors such as
JD.com
(JD).
Kessler, analyst Raymond James, says the tricky part with Alibaba will be measuring its hit to revenue, if that. And Chinese regulators are likely to go after other companies, he says.
Analysts predict that Alibaba will report $ 106 billion in sales for the fiscal year ending March 2021, according to FactSet. That would be a 49% increase from fiscal year 2020. Kessler said Barron’s that nationwide e-commerce sales are growing at a rate of 20% in China. Alibaba’s practices do not seem to be hurting competitors, ”he says.
Trade risk could still be an issue for U.S. investors in China. President Donald Trump’s prices on Chinese goods were rolling many businesses. Investors still don’t know how the Biden administration will handle China. “Trading has been a struggle,” said Rich Sega, Conning’s chief global investment strategy. He is hopeful that there will be a more friendly trade policy under Biden, which Sega believes is “less likely to use tariffs as a tool.”
Reshma Kapadia contributed to this article.