Ordinarily, the bullish narrative for Alibaba Group (NYSE:BABA) is easy for anyone to understand. As the flagship corporation of the world’s second-biggest economy, the so-called Amazon of China levers extraordinary influence. Further, with a massive population that is growing wealthier per capita, Alibaba stock is a play on the Asian juggernaut’s middle-class explosion. Unfortunately, the novel coronavirus changed almost everything.
While the key metrics will stay the same for the foreseeable future — China will remain a regional superpower, with BABA stock its brand — even the most optimistic supporter cannot ignore the geopolitical implications of the novel coronavirus. It’s not just the fact that the infectious disease originated there. Rather, China’s communist government engaged in a complex, Soviet-style coverup. Of course, politicians have seized on this moment, calling for accountability.
Collective anger at China is not going away. First, President Trump is never one to back down from controversial statements. From the get-go, he has deliberately framed COVID-19 as a distinctly Chinese virus, causing concerns about xenophobic scapegoating. Nevertheless, the Trump administration is going full bore against Beijing, urging them to come clean regarding what they know about the coronavirus.
But it’s not just the U.S. that has expressed outrage. Japan’s Deputy Prime Minister Taro Aso simultaneously slammed the World Health Organization and its key trading partner by stating that the former should be renamed the CHO — China Health Organization.
Naturally, this will lead to awkward diplomatic exchanges at the least. And that’s exactly what Alibaba stock doesn’t need right now. A devastating pandemic and a temporary shuttering of its home economy is bad enough.
Ticking off your country’s customers? That’s bad business practice in any culture.
How Alibaba Stock Can Make a Comeback
Like almost every other publicly traded security, Alibaba stock took a beating as epidemic between pandemic. Yet since late March, shares have marched upward. It ended last week within a few percentage points of break even for the year.
Logically, investors are enthusiastic the country seemingly getting a hold on its coronavirus cases. Although it’s too early to declare total victory, we haven’t seen a worrying growth of the virus yet. Therefore, the Chinese government has slowly opened its economy, inviting quarantined workers back to their jobs.
Further, early indicators suggest China’s economy is clawing back some of the ground it had lost during the mandatory lockdowns. Again, it’s too early to pronounce that it’s fully back. However, people are taking whatever good news they can get at this point.
As for factors that directly move Alibaba stock, contrarians may want to consider the East/West cultural differences toward personal savings. In a recent gallery article about Asian stocks, I argued that Asian families tend to value savings more so than expenditures.
To be sure, this is a nuanced statement. Over the last several years, we’ve seen China emerge as a legitimate rival to U.S. global economic supremacy through its almost miraculous economic growth. With greater wealth came the impetus to spend it. Therefore, part of the narrative for Alibaba stock revolves around this emerging spending power.
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At the same time, The Wall Street Journal last year noted that despite increased Chinese spending, on average, they save considerably more than their American counterparts. From my interpretation, the Chinese consumer can produce a greater bounce-back effect once the coronavirus is completely eradicated.
Therefore, it’s not unreasonable to be optimistic about BABA.
Make Sure to Plug Your Nose
While I’m saying this, I’m fully aware that China is currently public enemy number one. And it doesn’t help that the country’s problems extend well beyond COVID-19.
Earlier this month, Luckin Coffee (NASDAQ:LK) dropped a bombshell when an audit revealed that the company fabricated much of its revenue for 2019. Frankly, that’s all you need to know about Luckin. As I said, they are the Houston Astros of Wall Street and I’m sticking with that description.
I’m not saying that Alibaba stock is the next fraud case. But when we deal with China, we’re usually not dealing with a full deck. Previously, articulating this issue could draw accusations of being anti-China. Today, it’s just a fact.
Despite this, Alibaba stock does have a credible bullish narrative. And when I consider the relative strength of the Chinese consumer, I can’t help but feel that adds more credibility. But please don’t ignore the politics as BABA will likely not be able to dissociate from it.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
