The explosion in e-commerce in the U.S. is mirrored in other developed nations, with China showing incredible growth in this area. As a result, Alibaba (NYSE:BABA) stockholders have enjoyed appreciable gains over the years.
Alibaba stock remains the go-to investment for folks seeking to capitalize on China’s emerging e-commerce market. However, some traders might worry that Alibaba can’t possibly maintain its current growth rate.
Another concern is that the United States Congress threatened to delist foreign businesses from American stock exchanges. This happened in the wake of a probe into Chinese company Luckin Coffee’s (NASDAQ:LK) accounting practices.
Therefore, all Chinese companies could potentially be delisted. But does this mean that Alibaba stockholders should abandon ship? Given Alibaba’s relatively safe position and financial strength, there’s likely no real cause for concern.
Understanding the Congressional Crackdown
The Luckin scandal put a great deal of pressure on American regulators to take action against apparent bad actors in the markets. Or at the very least, the politicians had to look like they were taking action.
People, and particularly stock market traders, often have short memories when it comes to corporate scandals. The astonishing rebound in the Luckin stock price is a textbook example of how quickly the trading community can forgive and forget about these types of problems.
Besides, the delisting threat isn’t likely to impact Alibaba stock. The Holding Foreign Companies Accountable Act, which the Senate passed on May 21, would require foreign companies that are listed on the New York Stock Exchange or the Nasdaq to affirm that “they are not owned or controlled by a foreign government.”
Additionally, these foreign companies would be required to subject their auditors to inspection for at least three consecutive years by the Public Company Accounting Oversight Board.
Collectively, there are over 200 China-based companies listed on major U.S. exchanges. And the aggregate market value of those companies exceeds $1.3 trillion. Realistically, it’s unlikely that the American government will force the delisting of all of these companies.
The disruption to the American stock market would be profound if that happened. Besides, Alibaba doesn’t have a reputation for fraudulent practices. After some time passes, Congress’ posturing against foreign companies will likely be forgotten. Or at most, a small handful of foreign businesses will be affected.
The Recovery Is Under Way
Along with the regulatory crackdown, some Alibaba stock traders might fear that the novel coronavirus pandemic is taking a toll on the e-commerce giant. However, the data reveals persistent strength as Alibaba is fully in recovery mode.
The company’s CFO, Maggie Wu, did admit that the Covid-19 pandemic had a negative impact on Alibaba’s core commerce businesses. That being said, Wu also observed that Alibaba has experienced “a steady recovery since March.”
In some ways, the pandemic actually helped Alibaba’s business. How is this possible? As Alibaba CEO Daniel Zhang explains, the spread of the coronavirus induced a major shift towards e-commerce. “The pandemic has fundamentally altered consumer behavior and enterprise operations, making digital adoption and transformation a necessity,” stated Zhang.
The numbers appear to back up Zhang’s thesis. According to Alibaba, the company currently reaches 85% of the Chinese population in the nation’s developed areas. Moreover, Alibaba reaches 40% of the country’s population in its less developed areas.
Furthermore, Alibaba currently serves more than 180 million customers located outside of China. So, concerns about the pandemic’s impact on Alibaba’s business, and Chinese e-commerce in general, appear to be overstated.
The Takeaway on Alibaba Stock
Even the best companies on the market will be subject to scrutiny from time to time. Alibaba stockholders needn’t worry too much about the Congressional posturing or the pandemic’s fiscal impact on the company. Traders can rest assured that e-commerce activity remains robust and Alibaba’s market foothold is as firm as ever.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
