Alibaba Stock Sinks Despite Brightening Regulatory Picture. Is This Time Really

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Alibaba

stock has lost about 45% of its market value in the last year, and investors know not to get their hopes up. This time might be different–though patience will be key.

Alibaba stock (ticker: BABA) gained 14.7% on Wednesday, bringing it to its highest level since mid-February, before Russia invaded Ukraine and accelerated a stock market rout that has seen the

S&P 500
fall 8% over the same period. The stock was just about flat on the year, well outpacing the wider market; the S&P 500 has lost more than 14%, for those that need reminding. It’s been a remarkable turnaround for Alibaba, which hit a six-year low below $80 in mid-March.

The gains have come as the prospects that the regulatory pressures that have wiped away more than $500 billion in Alibaba’s market capitalization since late 2020 are finally clearing.

To recap: A crackdown by regulators in China—which coincided with President Xi Jinping’s attempts to tighten his grip on the world’s second-largest economy—destroyed shares in Alibaba and other tech stocks across much of 2021. Further pressures out of Washington, mostly focused on transparency, exacerbated the selloff amid the risk of widespread delistings of U.S.-listed Chinese stocks.

Alibaba has seen a number of short-term rallies this year amid signs that the regulatory picture is clearing. After all, Chinese officials have signaled as such—indicating that they would ease off the country’s tech giants and cooperate with U.S. authorities. But share price gains in mid-March and late April proved tough to consolidate.

The recent boost may be different. Chinese regulators greenlit a wave of new videogame licenses earlier this week, signaling support for a corner of the tech sector that officials had previously vilified. News on Thursday that regulators may be warming to the idea of an initial public offering for Alibaba-affiliated fintech giant Ant Group, has provided the latest fuel for the stock, which is now up 20% since Monday.

Regulators have begun early-stage discussions to possibly revive Ant Group’s IPO, establishing a team to reassess the fintech giant’s plans to sell shares and nearing the final stages of issuing a key license, Bloomberg reported, citing anonymous sources. Alibaba owns about a third of Ant, which was founded by Jack Ma, Alibaba’s most high-profile co-founder.

The good feelings dissipated, however, after Bloomberg later reported that the China Securities Regulatory Commission said it is not conducting work on a possible Ant IPO. Alibaba stock has fallen 6.1% in U.S. trading on Thursday after being up more than 5% in premarket action.

Still, some observers see better times ahead for Alibaba. “The Ant IPO revival rumor again suggests that the government is easing regulations to offset the economic slowdown,” says Bo Pei, an analyst at broker U.S. Tiger Securities. The brokerage upgraded Alibaba to Buy two weeks ago, with Pei writing that they “believe both revenue and profitability will bottom out and hit a long-awaited inflection point in the quarter.”

Other analysts are more cautious. Danny Law, an analyst at Guotai Junan Securities—one of China’s biggest investment banks—notes that the news has not been confirmed by the company, and that similar rumors have been published before.

“Certainly, it may stimulate the Company’s price in the very short term, but it may be back to normal if there is any process/ confirmation from the Company,” Law says. 

But Law remains upbeat on the stock, saying the recent rally is “also backed by an attractive valuation with an expectation of both stronger profitability and easing regulated business environment.”

If Ant is truly heading for an IPO, it would represent a historical turning point for Alibaba and Chinese tech companies more broadly. After all, the regulatory crackdown that began in earnest in November 2020 started with the scuttling of Ant’s IPO following pressure from authorities.

Still, we’ve been waiting for this moment for a while now. It might not hurt to wait a little longer.

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