Why Shares Of Alibaba Are Down By 4%?

Alibaba 12.03.21.

Alibaba Stock Is Moving Lower As Regulatory Risks Increase

Shares of Alibaba found themselves under pressure after a Wall Street Journal report suggested that China’s regulators were ready to impose a record fine on the company for anticompetitive behavior.

Alibaba’s problems started when China’s regulators suspended the IPO of Ant Group. There were many reports about Jack Ma’s potential conflict with China’s leadership at that time, and Ant Group has been under material regulatory pressure ever since. Today, media reports indicated that the company’s CEO resigned, which may have contributed to pressure on Alibaba shares.

Concerns about the future of Jack Ma and his companies put significant pressure on Alibaba’s shares which were trying to settle above the $320 level before Ant Group’s IPO were cancelled.

The market is concerned with the continued pressure on Alibaba rather than with the fine itself. Chinese regulators have recently fined other big companies like Baidu and Tencent which indicated that regulatory environment became more hostile for big Chinese companies.

What’s Next For Alibaba?

Shares of Alibaba are currently trading at less than 20 forward P/E which is cheap for a company of this scale in today’s market.

However, traders need positive catalysts in order to focus on the company’s valuation. Right now, the market is worried about Jack Ma’s problems and also about the general regulatory trend for big Chinese companies.

In this light, any regulatory problems of other Chinese companies like the Tencent or Baidu may have a negative impact on Alibaba stock. If such problems emerge, Alibaba shares may gain additional downside momentum.

In the current market environment, Alibaba is attractive from the valuation point of view, but it remains to be seen whether traders and investors will be ready to use the current pullback amid risks of more conflicts with Chinese regulators.

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