Shares of Alibaba Group Holding Ltd (BABA), like pretty much all Chinese stocks right now, are extremely beaten down. BABA stock has tumbled 26% over the last year, and is already down more than 9% to-date in 2016.
In fact, the first week of trading in 2016 looked eerily like the mid-August selloff in the Chinese stock market, which came after the government allowed the yuan to depreciate without notice. The Alibaba stock price got as low as $65 in August, and it would reach 52-week lows around $57 the next month.
With BABA stock just below $72 per share, the situation isn’t that bad yet. But sentiment is a nasty thing, and it’s likely that institutional U.S. investors are already selling shares to avoid exposure to the wild, unpredictable swings of the Chinese market.
Personally, I don’t blame them … I wouldn’t touch Alibaba stock — or its rival JD.com (JD) — with a 10-foot pole.
That said, Alibaba just did something awfully ambitious and pretty darn savvy. Bear market or not, it deserves recognition, and it’s not getting any from stock market talking heads.
Until now.
Give Credit Where Credit Is Due
The South China Morning Post reported the news today, and the title of the article pretty much says it all: “China’s Alibaba partners with banks, agencies to introduce B2B financing and rating services.”
The skeptical side of me says, “John, isn’t this a little weird? BABA literally bought the South China Morning Post, the largest English-language newspaper in Hong Kong, last month, vowing not to use it as a tool for shameless Alibaba-friendly propaganda.”
It certainly throws SCMP‘s objectivity into doubt, that much is certain. But the open-minded side of me says the news today is compelling.
Basically, BABA is teaming with 25 financial institutions and rating agencies to make international business-to-business trade safer and more convenient. In other words, Alibaba is now not only an e-commerce powerhouse, but a banker as well.
As it stands now, only Chinese small and medium sized enterprises (SMEs) can take out loans from BABA to fund international trades. Not anymore. Alibaba is going global.
It’s also going to start rating the credit of Chinese suppliers on its platform later in 2016, giving buyers unprecedented insight into “trustworthy trading partners” while also giving “Chinese suppliers access to innovative financing options,” the article explains.
On top of that, BABA is teaming with Chinese trade show giant UBM to create an online communication platform where buyers and exhibitors can connect before trade shows, making the in-person interactions more efficient. It makes loads of sense, connecting the offline trade shows with the advantages of online communication, and fits perfectly with Alibaba’s mission to make business easier.
These three initiatives certainly make commerce even easier, and BABA should reap rewards over time through increased transaction volume on its e-commerce platforms, as well as interest income it receives from loans to SMEs.
While the fact that the SCMP broke the story may raise an eyebrow or two, there’s no denying that these new initiatives should be good for BABA in the long run. It’s the current fluctuations of Chinese stocks that have me worried as an investor.
Personally, I won’t start thinking of BABA stock as a potential buy until it trades well below its 52-week lows, say the low $50s or high $40s, at which point the downside risk will be much more limited.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
