Wednesday, December 7, 2022
HomeMarketAlibaba and Other Chinese Stocks Keep Rallying. A Big Risk Is Being...

Alibaba and Other Chinese Stocks Keep Rallying. A Big Risk Is Being Ignored.

Like many other Chinese tech companies, Alibaba stock has suffered a severe decline since 2020.

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Greg Baker/AFP via Getty Images

Alibaba
and other Chinese tech stocks appear to have reversed a brutal two-year slide this month. Investors betting on a rebound may be ignoring the risk of China’s “zero Covid” policies and just how much more these stocks could be hurt.

Alibaba
(ticker: BABA) lost almost half its value in 2021 as, along with the rest of the Chinese tech sector, it found itself on the wrong side of regulators in both Beijing and Washington. The picture cleared up little in 2022, with China’s restrictive policies to control Covid-19 ushering the company to its worst revenue growth on record.

It has been a relentless destruction of market value. But early November seemed to promise a turnaround, with rumors that China was poised to ease Covid-19 policies at least partially supported by material measures to reduce the strain of restrictions. 

Alibaba
stock, emblematic of the wider tech sector and its sensitivity to growth in the world’s second-largest economy, has gained an impressive 24% over the past month. The
S&P 500,
by comparison, has crept 6% higher.

After a painful two years, it’s possible investors are getting too optimistic, too fast.

The recent moves by China to ease some of its severe restrictions are welcome. But are investors expecting an end to lockdowns faster than is reasonable?

“A meaningful reopening, which we define as a permanent end to snap lockdowns and other domestic mobility curbs, is most likely to take place in [the third quarter of 2023],” Mark Haefele, the chief investment officer of UBS Global Wealth Management, said in a recent note.

The end of 2023 is a long way off, but markets do function by pricing in events on a longer time horizon. Between now and then, at least two key uncertainties remain: just how severe the Covid-19 situation remains in China; and what President Xi Jinping’s recent consolidation of power means for a progressive policy on the coronavirus.

Investors got a stark reminder of the first uncertainty Thursday as China’s National Health Commission reported more than 31,000 new Covid-19 cases, the highest daily number since the beginning of the pandemic. Alibaba stock rallied anyway, with the Hong Kong-listed shares marching 1.3% higher (U.S. stock markets were closed Thursday for Thanksgiving.)

It’s something other than turkey for investors to chew on this Thanksgiving.

Write to Jack Denton at jack.denton@barrons.com

Credit: marketwatch.com

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