Alibaba Group Holding Ltd (NYSE:BABA) is one of the more remarkable stories of the 21st century. A few years ago, not too many people knew about the e-commerce company outside of China.
Now, the Asian giant’s version of Amazon.com, Inc. (NASDAQ:AMZN) is legitimately on the path to world domination. Indeed, the two industry titans are about to engage in an all-out brawl for the lucrative Southeast Asian market.
That’s a testament to the enormous leverage that Alibaba stock has acquired in just a short period of time. Chinese stocks, however, have faced tough opposition for obvious reasons.
While the broader domestic markets have rallied under President-elect Donald Trump’s message of bringing jobs back to America, China’s markets have sputtered. Since the election, the benchmark exchange-traded fund iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI) fell more than 6%.
Geopolitics Weigh on Alibaba Stock
While BABA stock is considered one of China’s premium investments, it’s gonna be tough to move against the grain. Notable names like Tencent Holdings Ltd (OTCMKTS:TCTZF) have gone on a near-straight decline since Trump’s victory. Others, like JD.Com Inc (ADR) (NASDAQ:JD), endure crippled momentum and are basically just holding on.
If recent events are any indicator, Alibaba stock has more questions than answers. During the presidential campaign, Donald Trump has taken clear aim at Chinese economic policies, including accusations of currency manipulation.
Those arguments have stuck among “Rust Belt” voters, with Trump diverting blame for their woes to the “foreign other.” Even with securing an official Electoral College victory, Trump hasn’t shown much give with China. That’s a problem for BABA stock, which will need at least a somewhat stable relationship with the U.S.
The latest fiasco involving the Asian power seizing a U.S. Navy underwater drone solidifies the overall conflict. Per usual, Trump lashed out using Twitter Inc’s (NYSE:TWTR) social media platform, citing the seizure as an “unprecedented act.” While China eventually returned the drone, they did so with a bit of political gamesmanship. If we’ve learned anything at all over the past year-and-a-half, it’s that Trump responds to every slight.
That again is a dark cloud hanging over Alibaba stock and its compatriots.
BABA Stock’s Technical Fork in the Road
While Trump and BABA may only be related through geopolitical dynamics, the ongoing stare down is negatively impacting shareholders. Since the general election, Alibaba stock has dropped 10% in the markets.
Its year-to-date performance is a lot brighter, up more than 17%. On the flipside, Alibaba stock was approaching 40% returns in late September. Essentially, Donald Trump was the difference between a good year and a great one.
That’s unfortunate for BABA because sentiment was surging earlier this year. For example, in the first half of August, bullish volume for Alibaba stock jumped from 10.7 million to nearly 72 million. An even bigger tally of nearly 79 million was witnessed in late May. Nowadays, volume has shrunk below the 10 million mark. Technical indicators that gauge market strength have fallen to deflated levels.
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First, the 200-day MA is a longer-term indicator. Shares often fall below its 50-day MA because financial markets have a natural ebb-and-flow cycle. However, the 200-day MA is a demarcation line.
By bouncing above it, BABA stock indicates that the previous decline was a healthy correction that will eventually reverse. But falling below it suggests that investors may be giving up on the e-commerce giant.
Second, because the first point is a well-known argument, many market participants won’t make a major move until somebody else does. There’s a possibility, then, that Alibaba stock will see choppy trading before establishing some stability.
Bottom Line on BABA stock
If it weren’t for this unusual political season, BABA would be on everyone’s wish list. But considering that we live in the reality of the surreal, it’s tough to be confident on Alibaba stock. Sure, it’s growth rate is superb and its impact on popular culture is moving by leaps and bounds.
At the same time, BABA shareholders are dealing with a president that holds no punches. That’s a wonderful attribute in a cage fight. But for anyone not vested purely in red, white and blue, it could be a thorn in the side.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
