What happened
Shares of Alibaba Group Holding (BABA +8.10%) fell 10.8% in April, according to data from S&P Global Market Intelligence. Alibaba, like many other Chinese stocks, was battered to begin the month, as the Chinese government continued to crack down on parts of the country's technology sector. That came on top of widespread lockdowns in Shanghai as the country pursued a "zero-COVID" policy. On top of all that bad news, a famous Alibaba investor cut his stake by 50% to start the month.
At one point, Alibaba was down even more severely. Yet on the last trading day of April, the stock spiked to finish the month "only" down 10.8%, after a bit of hopeful news came out of government officials in Beijing.
NYSE: BABA
Key Data Points
So what
April did not start off well for Alibaba. Rising COVID-19 cases in China prompted severe lockdowns, which threatened to hurt already subpar economic growth in the country. The new lockdowns came on top of the regulatory assault on technology that had begun 18 months ago, combined with the bursting of China's property bubble last summer, painting a dreary picture. That led analysts at Citigroup to downgrade Alibaba in a note to begin the month.
It also didn't help sentiment when news surfaced that Warren Buffett's partner Charlie Munger had cut his Alibaba stake by 50%, after building up the position for over a year. I think given heightened market risks around interest rates and the conflict in Ukraine, Munger probably wanted to cover the margin loan he had taken to fund part of the position. Still, the sale probably didn't help sentiment.
By the middle of the month, the Central Cyberspace Administration of China said it was embarking on a campaign to cut down on "illegal content" on the country's live-streaming and short-video apps. That hurt all Chinese stocks that are involved in short videos. While it's not Alibaba's main business, the stock was still down in response.
However, on the last trading day in April, the Chinese Politburo agreed to meet with the country's big tech firms at a symposium this week, signaling that it would pull back from its regulatory crackdown while vowing to introduce measures to support the tech sector.
The about-face is likely aimed at boosting the lagging Chinese economy, since tech companies have been laying off workers in recent weeks. Moreover, e-commerce and internet companies can greatly help an economy during a lockdown. Hopefully for battered China investors, it signals the end of the brutal two-year campaign.
Image source: Getty Images.
Now what
It was a great sign for Alibaba and other Chinese tech stocks that the nightmarish regulatory assault, full of surprise fines and moat-destroying regulations, may end. Of course, the symposium is going on right now, so it's still unclear what these new growth initiatives might look like. Regulators could also go back to cracking down on tech companies if the economy improves.
Alibaba's stock looks quite cheap these days, but there are still many risks. China's close relationship with Russia and recent anti-capitalist tilt are causes for concern for investors. Additionally, since regulations promoting competition have already been implemented, investors could see rival e-commerce platforms making competitive inroads against Alibaba's once-dominant position. The stock is probably cheap enough to buy here, but investors aren't out of the woods by any stretch.
