Alibaba (NYSE:BABA) is an e-commerce juggernaut. Some would even call it the Amazon (NASDAQ:AMZN) of China, and that’s not inaccurate. These days, however, BABA stock is disconnected from sound fundamentals, introducing significant risk for investors.
BABA stock reflects that risk, residing almost 24% below its 52-week high. The saga started last year when Alibaba founder Jack Ma sought to bring the fintech arm of his empire, Ant Group, public. The goal was to raise at least $30 billion, which would have shattered initial public offering (IPO) records, but Ma used some unusual tactics, drawing the ire of Beijing in the process.
Today, Ant remains a private company, Alibaba is flailing and perhaps most concerning to investors is that Ma hadn’t been seen in public in months until just this week.
There has been speculation that Ma was simply trying to keep a low profile in the wake of the Ant imbroglio and that very could well be the case. Still, someone can keep a low profile and still allow a photo of himself to be snapped.
The uncertainty around surrounding Ma certainly isn’t a near-term positive for Alibaba investors.
BABA Stock: Fears of Nationalization
Compounding investors’ woes is the fact that Alibaba is now in Beijing’s regulatory crosshairs in an antitrust kind of way.
“Based on tip-offs received by the State Administration for Market Regulation in recent days, the administration will be investigating Alibaba … for suspected monopolistic activities,” according to the Chinese Communist Party (CCP).
CCP claims Alibaba took steps to prevent sellers from listing items they featured on Alibaba on the platforms of rivals JD.com (NASDAQ:JD) and Pinduoduo (NASDAQ:PDD).
The CCP heat is leading to speculation Beijing could nationalize Alibaba. In the pantheon of emerging markets state-controlled companies, rare are the examples of those firms being e-commerce companies. Historical data confirm emerging markets investors are left yearning for more with state-run companies. Over the past three years, the WisdomTree Emerging Markets Ex-State Owned Enterprises ETF (NYSEARCA:XSOE) beat the MSCI Emerging Markets Index by almost 1,300 basis points.
There are no guarantees Alibaba will be nationalized, but if it is, there’s a credible chance the underlying investment thesis takes a major hit.
Alibaba Needs Change of Narrative
In more sanguine times, the Alibaba conversation would revolve around the massive opportunity that is China’s online retail market, looming growth at the hands of a rising middle class and increasing internet penetration and a burgeoning cloud computing business.
That isn’t the case today, meaning Alibaba needs to shift the narrative. Doing so under intensifying pressure from Beijing is a difficult task.
That’s the vexing thing about BABA stock right now. It’s an excellent fundamental story being torn apart by an inhospitable government. Until that situation cools off, investors should exercise extreme caution with the once revered Alibaba.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
