alibaba stock falls

Alibaba (NYSE: BABA) stock is trading sharply lower in US premarket price action today and looks set to fall below its IPO price. Other Chinese stocks are also lower after Chinese President Xi Jinping rejigged the Politburo Standing Committee.

In the rejig, Jinping got rid of several pro-reform individuals including Premier Li Keqiang. Notably, Jinping favors even greater state control and has reversed China’s decades of gradual opening. Last year, his tech crackdown led to a crash in Chinese stocks.

US-listed Chinese stocks face the dual whammy of increased scrutiny by the US SEC. After the Luckin Coffee accounting scandal, the US passed The Holding Foreign Companies Accountable Act mandates that foreign companies listed in the US would risk delisting if does not comply with the US PCAOB’s (Public Company Accounting Oversight Board) audits for three years in a row.

Here it is worth noting that while The Holding Foreign Companies Accountable Act is not solely targeted against China, mostly Chinese companies might be targeted amid the escalating US-China tensions.

Coming back to the slump in Alibaba stock, the Chinese e-commerce giant went public in 2014 at $68 per share. It raised $25 billion from the US listing which made it the largest IPO ever, a record it still holds.

Alibaba Stock Falls Below IPO Price

The fortunes of US-listed Chinese companies have nosedived over the last year. After the tech crackdown in 2021, several US fund managers including Cathie Wood of ARK Invest shunned Chinese companies. She warned of a structural reset in valuations of Chinese stocks.

The Chinese economy is anyways slowing down and fears of greater state control in the communist country are making markets even more worried. Commenting on the Politburo rejig in China, Sharif Farha, head of investments at HB Investments said “The concern is that absolute power may lead to harsh policy both locally and internationally.”

Farha added, “On a local level, zero covid policy or tougher regulations on China tech may not go away. On an international level, the market is definitely concerned about political tensions.”

Alibaba Announces 11.11 Global Shopping Festival

Separately, Alibaba announced the annual 11.11 Global Shopping Festival. The event is coming amid slowing retail sales in the world’s second-largest economy. In September, Chinese retail sales grow only 2.5%, missing estimates of 3.3% growth.

Commenting on the 11.11 sales event, Chui Xue, Chui Xue, President of Industry Development and Operation Center of Taobao and Tmall, Alibaba Group said, “11.11 this year will have the most diverse range of products in the event’s history, with 17 million products available to more than one billion annual active consumers on our platforms in China, thanks to the support of our brands and merchants from around the world.”

Retail companies are saddled with excess inventory. In October, Walmart and Target held their sale event while Amazon held its second Prime Day. It was the first time in history that Amazon held the second Prime Day in a year.

The company would release its earnings later this week and might provide insights into the sales during the event. Most Wall Street analysts recommend Amazon stock as a buy ahead of the earnings.

Chinese Stocks Slump after China Politburo Changes

Chinese stocks are trading lower day after the political changes in China. The Hang Seng index fell to its lowest level since 2008, continuing its perennial underperformance over the last decade.

Chinese EV stocks like NIO, Li Auto, and Xpeng Motors also look set to fall to new lows today. These three stocks have anyway been under pressure this year as supply chain issues have taken a toll on their production. Even Tesla’s production has been hit by supply chain woes and the company now expects 2022 delivery growth to be below 50%.

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