To say that Alibaba (NYSE:BABA) has been on a rollercoaster this year would be a gross understatement. First, the novel coronavirus originated in China, which posed severe concerns for Alibaba stock early in 2020. Then, the shares recovered nicely from the collapse in global markets during the first quarter. However, the specter of geopolitics — particularly the draconian tone of President Donald Trump — weighed on the company’s shares.
Nevertheless, BABA continued to deliver solid returns for stakeholders. Part of that could have been the opinion polls, which had former Vice President Joe Biden in the lead throughout the race.
So, it came as a shock to the system when President Trump appeared to have the definitive edge on Tuesday’s election night. For all the talk of a blue wave, Biden barely moved the needle. Indeed, it appeared that it was Trump who threatened to inexplicably expand the electoral map. Further evidence came from the Democrats’ absolutely disappointing performance in the Senate race.
Not surprisingly, then, China’s yuan took a dive as it appeared the U.S. — and the world — would have four more years of Trump. With the Chinese economy suddenly facing a rude awakening, the election also had strong , perhaps negative implications for BABA stock.
Are Brighter Days Ahead for Alibaba Stock?
Given that the Trump administration hasn’t held back any punches with China, those who were long on Alibaba stock certainly had a vested interest in Biden winning this election.
I asked Dr. David Kass, clinical professor of Finance at the University of Maryland’s Robert H. Smith School of Business, what a Biden administration would do for U.S. relations with the world’s second-biggest economy. In his email, Kass wrote the following:
“It is clearly in China’s interest, and that of the rest of the world, for a President Biden to restore U.S.-China relations to the less confrontational approach that preceded President Trump. President Biden is likely to form a coalition with our trading partners in Europe and then confront China in a less hostile fashion and be better able to negotiate our differences from a position of greater strength. The tariffs that President Trump introduced would likely be eliminated or substantially reduced. The level of international trade would then increase to the benefit of consumers in all countries that were impacted by the Trump tariffs. Tariffs are taxes on consumers that increase the prices of goods and thereby discourage their purchase. Both producers and consumers are harmed by tariffs. The introduction of tariffs in the 1930’s contributed to the severity of the Great Depression.”
Speaking of tariffs, it’s hard not to draw some connections between Trump and President Herbert Hoover. For instance, the Smoot-Hawley Tariff Act — which Hoover signed into law — “contributed to the early loss of confidence on Wall Street and signaled U.S. isolationism.” That isolationism, too, certainly reverberates through Trump’s consistent “America First” messaging.
So, the fact that Biden represents, in many ways, the polar opposite of Trump is definitively encouraging for Alibaba stock. Still, I wouldn’t get too overconfident. Here’s why.
Trump Can Put Up a Fuss
As you know, this election has been perdition for the American people — and the world.
According to another discussion I had with Kass, the current situation with Trump contesting the vote counting process is “unprecedented.” That in itself puts Alibaba stock in investment limbo.
Further, some of the allegations of voting irregularities could stick. I would know because my InvestorPlace article on BP (NYSE:BP) represents a time capsule of my perspective on election night. Here’s what I stated:
“Of course, this being 2020, the results couldn’t be tabulated on election night. From where I stand, it seems that President Trump will probably win again, despite the abysmal odds. And the Democrats really have to take responsibility for their own incompetence.”
Now, I get the argument that we saw record volumes of mail-in ballots this year. I also don’t pretend to be an expert on how individual states count their votes. Many states, like Pennsylvania, have distinct rules to their counting processes.
But it just seems odd. Throughout election night, I was chatting with an InvestorPlace colleague — he said that if Biden flipped Ohio, it would be game over for Trump. But it wasn’t that way at all. Trump kept Ohio and Biden didn’t flip anything of great value until some media outlets declared him the winner in Arizona.
Still, when I went to bed, I felt confident that Trump had won. Even in my dumb social media post, I forecasted that Trump would win with 275 electoral college votes. Essentially, Trump is naturally a more proven and talented leader than Biden. He just made some fatal mistakes.
When I woke up, though, Biden had put Trump in an electoral rear-naked chokehold. Huh?
Uncertain Road Ahead
I mention this not to propose a conspiratorial perspective. Rather, it’s clear that millions of Americans don’t trust the government nor the free press (a mission usually reserved for Russian disinformation campaigns).
So, if Biden ultimately wins the election, he can’t afford to let China have its way. Sure, a likely Republican-controlled Senate will create headwinds for Biden. However, if the Democrats want to keep power beyond 2020, they can’t afford to alienate so many Americans.
With all that in mind, there’s a chance it might be business as usual when it comes how Biden deals with China. And that may not be so great for Alibaba stock.
My idea for investors? Wait out BABA for a bit, until we get some clarity in governance.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.
