- Alibaba’s stock price recently shot up based on positive news coming out of China. This rally comes after the stock fell about 49% in 2021 and 25% in 2022.
- Chinese companies that trade in the U.S. had a rough time in 2022 due to the general macroeconomic issues globally, along with the stringent COVID-19 policies in China and the government’s strict regulatory pressures.
- With Jack Ma finally resurfacing and giving up control of the fintech giant, Alibaba’s stock price has risen once again – analysts are optimistic that this recent news indicates that issues with Beijing and Alibaba will come to an end.
We finally have some good news coming out of China after months of uncertainty and volatility due to political issues and COVID-related policies. The Hang Seng index gained 1.84% on its first trading day of 2023 last Tuesday, which was the largest increase on the first trading day of a new year since 2018. Along with this news, shares of Alibaba’s stock have gone up significantly in 2023.
While Alibaba’s stock price is still down about 12% from one year ago, the share price has surged recently. Alibaba is now a far cry from the stressful situation it was in this past summer when the Chinese company was on SEC’s delisting watchlist.
We’re going to look at the story behind Alibaba’s recent stock surge and what could be next for the company as we enter 2023.
Why Did BABA Stock Drop?
Before we look at why the stock price went up, we have to discuss what caused it to drop in the first place.
Stringent COVID-19 policies
China has had the most stringent ongoing policies related to COVID-19, and this has caused many economic problems. We looked at how Apple has struggled with production due to factory issues and political unrest. These COVID-related policies hurt Chinese companies as many production and supply chain issues arose from the lockdowns. The lockdowns also hurt consumer spending and overall investor confidence.
We’ve looked at Alibaba in the past when discussing why Chinese stocks fell sharply. The downward trend for Chinese stocks accelerated in October when it was announced that President Xi Jinping would be claiming an unprecedented third term as the leader of the Chinese Communist Party, and therefore, the country.
The Hang Seng index fell the next day since there were fears over economic policies and how the leadership would navigate the situation with COVID-related lockdowns. The issue with Jinping being the leader for the third consecutive term was that from 1982 to 2018, there was a constitutional limit of two consecutive terms for presidents. Many analysts feared that the leadership would continue the crackdown on tech giants and that the political party would not ease regulations or lockdowns.
The political issues were also tied to the government’s probe of Alibaba. In April 2020, Chinese regulators fined the company $2.8 billion due to anti-monopoly laws. The regulatory crackdown has been an ongoing issue for the firm ever since.
In late July, it was revealed that the U.S. Securities and Exchange Commission had added Alibaba to a list of Chinese companies that were at risk of being delisted for issues with accounting regulations. This news led to foreign investors unloading their Chinese holdings in American depository receipts (ADRs), the tool that allows American-based investors to easily purchase foreign stocks.
This caused the stock to drop until late August when reports came out that Beijing and American regulators were finalizing an audit inspection deal.
When it was all said and done, Alibaba’s stock dropped by 25% in 2022 and about 49% in 2021.
What’s the Story Behind BABA’s Recent Stock Surge?
Since we looked at why Baba stock dropped in 2022, it’s time to look at what has recently caused the share price to rise again as we enter 2023.
Business-friendly government policies
Alibaba’s stock started rising on Dec. 19 when the Chinese government announced that it would introduce business-friendly policies to boost the struggling economy in 2023. This news was a welcome change as regulatory scrutiny had weighed heavily on Chinese stocks for the past few years. These Chinese companies also had to deal with COVID-19 shutdowns, supply chain issues, inflation, and an economic downturn.
Guo Shuqing, a Chinese Communist Party secretary, announced that the two-year investigation into the tech industry would be “normalizing” and that the government would focus on helping these companies lead economic growth to create more jobs.
China announces the reopening of the border
At the end of December, China revealed that it would finally be opening up its borders as it began to ease COVID-19 restrictions. Some quarantine measures for visitors dropped as of Jan. 8, the news boosted Chinese stocks linked to consumption-based products.
Jack Ma to give up control of Ant Group
In what many consider a shocking revelation, Jack Ma has resurfaced in Thailand and announced that he would be giving up control of the Ant Group. This caused shares of Alibaba to go up 8% in Hong Kong on Monday. This news boosted Alibaba’s stock on Jan. 9, 2023, as shares of Chinese companies with Ant Group as a major shareholder all went up.
Back in November 2020, the Ant Group’s $37 billion IPO was scrapped at the last minute due to issues between Ma and Beijing, leading to a two-year-long regulatory overhaul. With Ma giving up control of the Ant group, there are hints from officials in Beijing that the crackdown on the tech industry is finally concluding.
It’s also worth noting that Alibaba shares went up on Dec. 29, 2022 when China’s Banking and Insurance Regulatory Commission approved the Ant Group to more than double its registered capital in the consumer finance sector to $2.7 billion. This news suggested to the market that the tensions between Jack Ma and the government were being worked out.
Positive analyst sentiment
In the next section, we’ll look at how a vote of confidence from analysts at Goldman Sachs has helped the shares go up. It’s worth mentioning that analysts from both Morgan Stanley and Goldman Sachs have given Alibaba stock a buy rating. Morgan Stanley announced that they would feature Alibaba as its “top pick” of stocks in the Chinese internet business segment due to the easing up of regulations.
When Alibaba shared its earnings report for Q3 2022, the company posted revenue of about $29 billion, which meant that growth had slowed down to about 3% on an annual basis due to the COVID-19 situation that was hurting consumer spending. There’s now optimism that the company will report higher earnings in 2023 thanks to the country opening up again and with assistance from the government.
What’s Next For BABA Stock?
Goldman Sachs has just added BABA stock to the conviction buy list because they believe this stock could go up by up to 25%. Analyst Ronald Keung believes that Alibaba stock is the best way to invest in the rebound of China’s internet business. Alibaba is expected to experience double-digit growth in advertising and commission. Factors that are contributing to this upward trend include:
- A rebound in apparel and cosmetics
- Easing up of the live streaming shopping format
- Growth in AliCloud and international services
- The stock’s current attractive valuation
These factors, along with the easing of COVID-19 restrictions and a macroeconomic recovery in the second quarter of 2022, are making Alibaba’s stock a buy in 2023 as of this writing.
The BABA share price opened at $111.99 on Jan. 9, 2023. The stock has a 52-week low of $58.01 and a high of $138.70. Analysts at Goldman Sachs have given the company a $138 price target.
How Should You Be Investing?
Despite the recent positive news for Alibaba, we can’t ignore that the shares have plummeted during the last two years, so long-term investors are still waiting to see positive returns on their investments. We also can’t ignore the role of soaring inflation and aggressive rate hikes when it comes to investing, as the stock market had a volatile year in 2022.
We have good news for all would-be investors, Q.ai takes the guesswork out of investing. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits like the Global Trends Kit or Emerging Tech Kit. Best of all, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in.
We will continue tracking the situation with Chinese stocks that trade in the U.S. It appears that there are finally signs of optimism when it comes to the Chinese economy opening up enough to allow these tech giants to resume standard business operations. We will have to wait and see to observe how smooth of a reopening we get in China.
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