Alibaba (NYSE: BABA) is down 9.2% in the past two weeks. Much of the selling pressure on BABA stock has come in response to reports that the Trump administration is considering a ban on all U.S. investment in China as its next step in the trade war.
Banning all U.S. investment in China and U.S. listings of Chinese stocks would be a disaster for the U.S. It simply won’t happen. In the meantime, Alibaba Group will continue to put up growth numbers that are the envy of its U.S. counterparts. And fortunate long-term investors can scoop up BABA stock at a trade war discount.
The Report
CNBC published the original report about potentially blocking U.S. investment in China. Almost immediately, administration officials said the report was inaccurate.
Monica Crowley, assistant U.S. Treasury secretary for public affairs, said the administration is “not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.”
White House trade adviser Peter Navarro later said, “over half of it was highly inaccurate or simply flat-out false.”
The immediate backpedaling on the part of the administration suggests at best they were testing the waters on the idea. At worst, it was a case of the proverbial “fake news.” Either way, the administration’s reaction suggests a block on Chinese stocks isn’t happening.
More Self-Inflicted Wounds
Several economists and experts have weighed in on why a ban on U.S. investments in China would be a disaster for America. Former chairman of Morgan Stanley Asia Stephen Roach said a band on Chinese investment would be an “unmitigated disaster” for the U.S. given China will be the biggest source of global economic growth in the first half of the 21st century.
The last thing the U.S. government should want to do is restrict U.S. access to that potential wealth creation.
In a scathing editorial, the Wall Street Journal called delisting Chinese stocks in the U.S. the “worst China trade idea.”
The WSJ argued that U.S. businesses and capital markets would be hurt by missing out on China’s growth. China, on the other hand, would simply look elsewhere to raise money.
And here’s where trade negotiations get tricky for Trump. The U.S. economy is booming. Unemployment is low. Wages are rising for the first time in a long time. Workers and businesses got a big tax cut. The stock market is near all-time highs. At least among investors and business leaders, Trump’s support should be sky high heading into 2020. But it’s not.
A new CNBC poll this week shows Trump’s approval rating at just 37%, a new low for his presidency. Approval for Trump’s handling of the economy is now just 42%, down from 48% in May.
For whatever reason, Trump has chosen the trade war as his line in the sand, and he seems willing to go down with the ship.
What It Means for BABA Stock
I’ve barely mentioned Alibaba stock specifically in this story, and that’s for a reason. Alibaba Group is doing just fine. BABA stock was doing just fine prior to these absurd stories about delisting Chinese stocks.
The BABA stock price hit $184 in September, its highest level since May, after reporting 42% revenue growth and 145.9% net income growth last quarter.
I’ve written repeatedly about the long-term investing opportunity in BABA stock. In my opinion, uncertainties about the trade war are the only thing holding BABA stock back.
The trade war will likely be resolved one way or another by the end of 2020. Either Trump will secure a deal in an attempt to right his economic ship before the election, or the trade war will escalate and Trump will get voted out of office. Either way, Xi Jinping is president of China for life. Not only can China outlast Trump in the trade war, a “victory” over the U.S. would look great for China on the world stage.
For U.S. investors, BABA stock isn’t going anywhere. If anything, the latest headlines and the subsequent sell-off have provided a buying opportunity and a potential healthy technical pullback for the stock. The trade war will ultimately end. Investors taking a second look at BABA stock will eventually realize just how massive of a long-term opportunity it presents.
As of this writing, Wayne Duggan was long BABA stock.
