As the year draws to a close, global investors face increasing risks associated with China, even as the country offers long-term opportunities.
No one has received a sharper reminder of that fact last week than Jack Ma, the billionaire founder of the Chinese e-commerce giant
Alibaba Group Holding
(label: BABA), while the Chinese government decided on Christmas Eve to take measures for expansion and extremely successful business.
Beijing has launched an antitrust investigation against Alibaba, while Ant Group, the company’s financial unit, has been invited to a meeting with banking supervisors to discuss financial regulations. In other words, Alibaba must play by Chinese rules.
The news hit US shares listed on the US list, falling on December 13 by 13.3% to $ 34.18. This is the largest daily percentage drop since the company entered the market in 2014 and exceeded the drop of 30% compared to the peak at the end of October. “It’s a little overreacting,” says Raymond James analyst Aaron Kessler, of Thursday’s sale, adding that the stock is still a strong buy.
So far, the shares have risen by almost 5%.
The camaraderie of Alibaba is in stark contrast to the negligible reaction of stocks of U.S. tech giants to the persistent threat of antitrust persecution in recent years.
(GOOGL), Google’s parent, has risen about 13% since Oct. 19, the day before the Justice Department and various states filed lawsuits accusing Alphabet of operating an illegal monopoly. The Nasdaq collected 11% in the same range. Stocks
(FB) have fallen by about 4% since December 9, when the company was hit by similar lawsuits. Facebook has earned about 30% to date, while Alphabet has grown by 29%.
Investors seem to be betting that nothing will come out of U.S. lawsuits – or that America’s biggest tech companies might be worth that much, or more, if they break up. However, in China, the government is the law. If he has a problem with Alibaba, Alibaba has a problem.
China is not only targeting Alibaba – it is also targeting Mau, which controls Ant Financial, which was forced to withdraw a planned $ 34 billion public offering last month after the agreement damaged Chinese authorities. Alibaba and Ant said in separate statements that they would cooperate with regulators.
China last month released a draft of antitrust rules aimed at curbing large Internet companies. Regulators are now investigating how Alibaba is using exclusivity arrangements with retailers selling on its e-commerce platform, preventing them from working through rivals like
Kessler, an analyst at Raymond James, says the awkward part with Alibaba will quantify the revenue hit, if any. And Chinese regulators are likely to go looking for other companies, he says.
Analysts estimate that Alibaba will report sales of $ 106 billion for the fiscal year ending in March 2021, according to FactSet. That would be 49% more than fiscal year 2020. Kessler told Barron’s that e-commerce sales across the industry are growing at a rate of 20% in China. Alibaba’s practice “does not seem to harm competitors,” he says.
Trade risk could also remain a problem for U.S. investors in China. President Donald Trump’s tariffs on Chinese goods have shaken many industries. Investors do not yet know how the Biden administration will treat China. “Trade has been a struggle,” says Rich Sega, Conning’s chief global investment strategist. He hopes trade policy will be more pleasant for Biden, whom Sega believes will be “less likely to use tariffs as weapons.”
Reshma Kapadia contributed to this article.