It’s no secret that the final months of 2021 brought some some turbulence for Chinese stocks. When the U.S. Securities and Exchange Commission (SEC) announced regulatory crackdowns for Chinese companies that trade on major U.S. exchanges, companies such as Alibaba Group (NYSE:BABA) faced an uncertain future. This wasn’t helped by Chinese ride sharing giant Didi Global (NYSE:DIDI) complying with government orders to delist from the New York Stock Exchange. However, 2022 has brought new problems for the e-commerce giant. BABA stock is falling today following a report regarding an investigation from the U.S. government.
What’s Happening With BABA Stock
President Joe Biden’s administration is concerned that Alibaba’s cloud business may pose a threat to U.S. national security. According to a report from Reuters this morning, the White House has opened a probe into the company’s methods of storing data for U.S. clients.
This is hardly good news for BABA stock, which was actually rising within the first hour of trading this morning. Since then, though, it has reversed direction and is currently down 0.68% for the day. It still remains in the green by 0.28% for the week and 2.12% for the month.
This news from the White House raises some questions about the future of the stock. Additionally, there are other factors to consider. BABA stock is being outperformed by its peers such as JD.com (NASDAQ:JD) and Didi Global, both of which are seeing shares rise today. While all three Chinese tech stocks rose last week, BABA has fallen behind.
Why It Matters
Broader market forces aside, the recent probe promises to be bad news for Alibaba in the weeks ahead. This is exactly the type of news that could derail early year growth. Chinese stocks were already facing increasing scrutiny from U.S. regulators. If the probe reveals anything compromising, it will likely send BABA stock plunging.
Wall Street won’t react well to concerns from the U.S. government that a company as powerful as Alibaba could be gaining access to users’ personal information and intellectual property. One source notes that “the potential for Beijing to disrupt access by U.S. users to their information stored on Alibaba cloud is also a concern.”
If the investigation reveals either or both to be true, two outcomes are possible. Regulators will either force Alibaba to take steep action by curbing its cloud business or will lose U.S. users as a customer base. Since the company’s cloud component accounts for roughly 7% of its yearly revenue, either outcome would be bad for share prices. In either event, investors are likely to cut ties with the company in an attempt to avoid further losses, thereby driving prices down even further.
What It Means
As is often the case with government probes, all we can do is wait and see. Just the news of an investigation into a company is typically enough to send prices into the red. Concerns about Chinese companies and U.S. data are well documented. For one of China’s largest and most powerful companies to be facing these accusations could mean a rough road ahead not just for Alibaba but for its peers as well.
Wall Street hates uncertainty and right now, the future of BABA stock is far from certain. Indeed, signs point toward further turbulence ahead.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
