Share values of the renowned Alibaba Group (NYSE: BABA) suffered yet another decline today, evidently reflective of emerging weaknesses in the Chinese economy.
In an attempt to instill optimism regarding China’s recovery, the country preemptively disclosed its 2023 gross domestic product (GDP) growth figures, with China’s Premier Li Qiang revealing at the World Economic Forum in Davos that the economy had expanded by “around 5.2%.”
Known for manipulating the timing of economic data releases, China’s early revelation could be construed as a deliberate endeavor to influence public sentiment.
The latest concern arose from reports suggesting that Chinese authorities had been instructing institutional investors not to divest their stock holdings. However, this directive appears to have had an unintended effect, calling into question whether market prices accurately mirror the sentiments of market participants.
As of 12:41 p.m. ET, the stock had dipped by 3.1%.
Image source: Alibaba.
The Ripple Effect on Alibaba
Although no specific developments concerning Alibaba were reported today, the stock has exhibited a marked susceptibility to the performance of the Chinese economy in recent years. Alibaba found itself at the epicenter of Beijing’s crackdown on the technology sector, a move seemingly incited, in part, by disparaging remarks made by Alibaba Founder Jack Ma directed at Chinese financial authorities.
Subsequently, Alibaba has grappled with the broader economic fragility in China and the repercussions of regulatory actions. For instance, the company shelved plans to spin off its cloud computing division due to fresh restrictions on chip exports from the U.S. Additionally, it has ceded market share to the parent company of Pinduoduo, PDD Holdings.
Prospects of Alibaba’s Recovery
Alibaba maintains robust profitability and is witnessing steady revenue growth. From a conventional valuation perspective, the stock appears inexpensive with a price-to-earnings ratio of approximately 10. However, the pressure exerted by Chinese authorities against stock divestment is likely to cast a pall over the sector.
While a recovery in Alibaba’s stock value is plausible in the future, an immediate surge seems improbable given the absence of signs indicating an end to the broader economic malaise in China.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
