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BABA Stock: 3 Big Reasons Alibaba Shares Are Struggling Today

Alibaba (NYSE:BABA) has largely found success in 2020, thanks to its impressive e-commerce and cloud computing businesses. In fact, the company set new records in November with its Singles Day shopping holiday. However, despite this success, BABA stock is suffering on Monday. And importantly for investors, it looks like there are three big reasons.

Alibaba Group (BABA) headquarters sign located in Hangzhou China

Source: Kevin Chen Photography / Shutterstock.com

To start, investors should know that BABA stock is down nearly 3% in intraday trading. This comes after the company has gained about 20% year to date.

So what are the three things weighing on Alibaba shares here?

Reason No. 1: Chinese Fines Weigh on BABA Stock

Earlier today, investors learned that the Chinese State Administration for Market Regulation levied fines against Alibaba and other Chinese companies. According to the antitrust watchdog, Alibaba did not seek approval before increasing its stake in Intime Retail Group, a department store chain. Importantly, this issue comes from a move in 2017 to give Alibaba a nearly 74% stake in the retailer. As a result, Alibaba now owes a fine of approximately $76,500.

So what is the bottom line? To start, Alibaba is not alone in facing fines. Tencent (OTCMKTS:TCEHY) is also under scrutiny for a deal with its e-books business. This means investors may take some comfort in knowing that Alibaba is not being singled out. However, while the fine is not huge, it raises concerns.

Importantly, Alibaba and its large tech peers have been allowed to grow at a rapid pace without intervention. Now, it seems that the Chinese government wants to play a more hands-on role. These fines come after the Ant Group IPO was delayed, another downside catalyst on BABA stock.

Reason No. 2: Investors Fear Delisting

Name a Chinese equity, and chances are American investors are selling it off on fears of delisting. This comes after the U.S. House of Representatives passed the Holding Foreign Companies Accountable Act with bipartisan support. Essentially, this bill would allow the U.S. delist a foreign company if it failed to comply with auditing standards over a three-year period.

But where does the panic come from? Do investors believe that their favorite Chinese companies will not comply? As InvestorPlace contributor Wayne Duggan recently highlighted, Alibaba complied with a U.S. Securities and Exchange Commission in 2016. At the time, no allegations emerged. Plus, Duggan is confident that a recent dual listing in Hong Kong and the Alibaba corporate structure will protect BABA stock from U.S. delisting.

The bottom line? Do your own research on Chinese companies in your portfolio. As we wrote recently about Nio (NYSE:NIO), this legislation is likely trying to prevent a repeat of the Luckin Coffee (OTCMKTS:LKNCY) situation. Companies running legitimate businesses that are willing to comply with audits should emerge just fine.

Reason No. 3: Trump, Biden and International Politics

The last reason that BABA stock is in the dumps today is likely the broader U.S.-China political context. President Donald Trump is likely to sign the Holding Foreign Companies Accountable Act into law before the end of his term. And while the bill does not specifically target any one Chinese company, it follows strong rhetoric from Trump… and the whole U.S.-China trade war.

Unsurprisingly, many Chinese companies have been caught in this high-stakes trade war. Although many investors believe President-elect Joe Biden will smooth relations with China, there is still some fear. Recently, Biden said he would not take any immediate action on the existing tariffs against China. Depending on how the Democrat navigates U.S.-China relations, Alibaba and its peers could face ongoing pressure.

The Bottom Line

Clearly, there is a series of headlines weighing down BABA stock. How you proceed should reflect your feelings on Alibaba, your belief in it to succeed and whether or not you think the company can navigate upcoming audit and antitrust actions.

On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Sarah Smith is a Web Content Producer with InvestorPlace.com. 

Article printed from InvestorPlace Media, https://investorplace.com/2020/12/baba-stock-3-big-reasons-alibaba-shares-are-struggling-today/.

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