When Alibaba (BABA) plunged to a $73.28 low plunged, China’s government needed to step in. To
alleviate fears of the SEC de-listing hundreds of companies including Baidu (BIDU), the Chinese
government softened its stance.
Central to the SEC de-listing firms is Chinese firms unwilling to supply audited financial results. Those
companies need to comply with U.S. rules if it wants to retain their listing rights. The government should
not underestimate the importance of raising capital from U.S. markets. They have better liquidity and
bigger financial backers. Alibaba benefits the most from a continued listing. The e-commerce giant faces
a dramatic slowdown in domestic markets.
Alibaba is taking advantage of its low stock price by increasing its stock buyback commitment. When the
supply constraints ease to meet excess demand, Alibaba may seek capital by selling shares.
Near-term risks are higher than usual. In Shanghai, China, Covid cases are rising. Due to zero Covid
tolerance, the city is shut down. This will hurt China’s GDP by at least 3% this year. BABA stock may fall
further as markets adjust to the slowdown. As the lockdown eases and cases fall, Alibaba’s mobile e-
commerce activity will rebound.
Investors should wait for another round of bearishness to send Alibaba shares to a better bargain price.
