BABA's Overreaction to Xi Jinping's Reelection
People reacted to the potential effects of President Xi Jinping's third term on the economy by selling Chinese stocks at the start of the current week. Investors have expressed concern over the slowing Chinese economy due to numerous of the Chinese leader's important initiatives, including the zero-covid policy and a crackdown on growing companies for the good of all.
The status quo is anticipated to remain for some time now that XI has secured his term because there aren't many people with the power to criticize his policies after years of power consolidation. As a result, China might delay before fully reopening its economy, but investors expect that the scrutiny by the Communist Party on local private businesses and tech entrepreneurs might persist.
Investors are overreacting to the news and ignoring that Xi has led China for ten years. As a result, it is unlikely that the Chinese government's attitude toward high-tech will change much from the status quo, and given that no new sanctions were imposed on Alibaba in 2022, the current outlook may persist. Additionally, to achieve economic prosperity in the near future, the Chinese government needs to take the appropriate actions, which include fostering a business-friendly climate locally, which is advantageous to China's leading firms.
Although Chinese companies face several structural and political risks, there is a compelling argument that these risks have already been priced in the stock prices. Indeed, Alibaba moves in tandem with the Chinese economy, and any good news about it, such as the reopening of the economy and fiscal and monetary stimulus by the government, would prove to be a catalyst for upside growth due to the historically low levels.
Favorably, the probability of a forced delisting of $BABA from the US stock exchange appears to be low. However, this depends on the outcome and audit results of the PCAOB's investigation, expected later in the year.
Last but not least, the conversion of $BABA to dual-primary listing status in Hong Kong is anticipated to be completed by December. Alibaba's upgrade to a primary listing in Hong Kong would give the business access to a new pool of investors from China and Asia.