Editor’s note: This article was updated on April 14 to clarify the time period in which Daily Journal cut its holdings in Alibaba (NYSE:BABA).
Alibaba’s (NYSE:BABA) troubles are continuing into this week after investors learned that a company overseen by Charlie Munger reduced its stake. Indeed, BABA stock has been struggling today after Daily Journal Corp. announced it was cutting its stake in half. Munger is the former chairman of the software and publishing company and still helps oversee its investments. Now, he has slashed his stake in the e-commerce giant as uncertainty continues to cloud Chinese markets.
What’s Happening With BABA Stock
Reuters reports that, according to a regulatory filing, Daily Journal has reduced its Alibaba stake from 602,060 to 300,000 as of March 31. While that still amounts to $32.6 million worth of BABA stock left, it is nevertheless a significant reduction. The stock’s performance today has been turbulent, and shares have spent most of the afternoon in the red. As of this writing, BABA stock is down 1.75% for the day.
Why It Matters
While Munger’s team has reduced its BABA holdings by roughly 50%, they are still holding onto the other 50%. The company could have cashed out completely. That said, it’s clear from the stock’s performance today that investors don’t see this as a glass-half-full situation.
It’s easy to see how the news would send investor confidence falling. When Warren Buffett takes a position in a stock, other prominent investors follow his example. Now that his Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) vice chairman has slashed his stake in an already troubled company, there’s plenty of reason for investors to be nervous that others will jump ship. Munger has long been bullish on China, and Wall Street knows it. He made headlines in early 2022 by doubling down on BABA stock.
However, Munger has plenty of reason to approach it with caution. External factors have been slowly pushing the stock down for months. “Investors remain hopeful that the Chinese government’s crackdown on publicly traded companies is ending,” reports InvestorPlace contributor Joel Baglole. “But risks remain for Alibaba and its shareholders in the form of rising competition and slowing growth.”
What It Means
There’s a clear bottom line to this story. The fact that Munger is adapting a bearish mindset toward BABA stock will likely cause other investors to regard the company with skepticism. Some experts called it a mistake when Citi (NYSE:C) reduced its price target on the company, but the tides may be about to change.
Even if China’s regulatory crackdowns ease, the country remains an unstable market that poses plenty of risk for investors. Between the rising Covid-19 cases and its government’s allegiance to Russia, investors have plenty of cause for concern. Munger’s team at Daily Journal did not issue an immediate statement on their action toward BABA stock. However, they have plenty of reason for a bearish play on a stock that has demonstrated considerable instability.
On the date of publication, Samuel O’Brient did not hold (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.
