Intuitively, you wouldn’t expect Alibaba (NYSE:BABA) to perform well. Essentially China’s flagship company, Alibaba, in many ways represents both the country’s progress made and aspirations still to be achieved. But with the coronavirus from China afflicting their nation the most out of all international cases presently, you’d be forgiven for believing that sentiment for Alibaba stock is poor.
Granted, on a year-to-date basis, shares aren’t looking too hot.
Like most investments, Alibaba stock has taken a good-sized beating. Nevertheless, when you consider the context — the unwarranted and extreme panic surrounding the virus — Alibaba is actually doing very well.
Technically, the stock is trading just underneath its 200-day moving average. More importantly, the bullish trend channel that started in late 2018 to early 2019 is still intact. Admittedly, shares are stretching the resilience of this channel’s support line. However, keep in mind that it’s a rising one: since December 2018, BABA has charted a series of higher lows.
Following the March 17 session, Alibaba stock has returned to levels right before positive sentiment over the U.S.-China phase one trade deal ballooned global equities. In other words, the sudden bravado from the negotiation has been priced out. That leaves Alibaba on its fundamentals, which I firmly believe are positive.
On a very basic level, you must understand that China is the world’s largest market for pretty much anything. Over the past 20 years, the country has exploded in terms of prominence and economic leverage. Frankly, the coronavirus — as serious as a problem it is — won’t move this needle.
China is a country of 1.4 billion. While tragic, the coronavirus has killed 3,226 in that country. We need perspective.
China Is “Choosing” to Lift Alibaba Stock
Honestly, China has the right idea here. So far, the coronavirus has infected only 0.0058% of their population. They realize that they can’t let this relatively infinitesimal figure impose a gargantuan impact on their economy.
Therefore, the Chinese government did what they had to do. To best mitigate the spread of the disease known as Covid-19, they imposed what many consider draconian lockdowns. But they likely reasoned that it’s better to take decisive action sooner rather than later.
Sure, recent economic data doesn’t support the idea of a burgeoning China right now. But again, we’re talking about historical reports. Of course, the data looks bad because China took the pain early. In my opinion, the more pivotal figure is 1%. That’s the growth rate of total infection cases between March 1 and March 16 in China.
From the American news cycle, I’m constantly hearing talks about flattening the infection curve. China has made theirs into a pancake. Of course, this is a net positive for Alibaba stock. It’s likely a big part of the reason why shares are holding up well.
The other reason? Chinese consumer spending practically has nowhere to go but home.
Starting from January, the Chinese government’s containment efforts prevented many travelers from leaving. Several other countries have also imposed travel bans against people coming from China. While that might make some folks feel safer, it’s having a ripple effect across the global economy.
As CNN reported at the time, China owns the world’s largest market for outbound travel. We’re talking a shift from 4.5 million travelers in 2000 to a whopping 150 million in 2018. Likely, that money gets spent domestically, which is a natural catalyst for Alibaba stock. And that’s also the benefit of rational thinking.
Corona-Hysteria Is Only Hurting Everyone Else
As my readers know, I’ve never denied the seriousness of Covid-19. At the same time, I’ve urged people to stay calm and rational. While I was directing my message to investors, this applies perfectly on a larger scale.
At time of writing, the U.S. death toll has just surpassed the triple-digit mark. Again, it is a tragedy for the affected families and loved ones. But does driving the economy into a recession and spiraling society into a frenzy honor these fallen Americans? Respectfully, I think not.
What we need to do is tone down the rhetoric and that starts from the top. While it’s cute to use this issue as a political weapon, we’ve got to remember, in a globalized economy, we’re all in this together. Further, as the Wall Street Journal points out:
“A minor part of the global tourism trade until the 2000s, Chinese visitors are now the most lucrative group for many countries. Nearly 168 million residents of China went outside the country in 2018, according to the U.N. World Tourism Organization, and spent some $277 billion. That is more than three times the travelers and five times the spending of a decade earlier.”
Put differently, we can’t just think about the immediate health problem. We must seriously consider whether the cure is worth the risk. Presently, Alibaba stock is demonstrating the better results from clear — not panicked — thinking.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
