Alibaba (NYSE:BABA) stock is up nearly 12% today on news that the government in Beijing is willing to provide stimulus to boost the economy that is struggling with a renewed Covid-19 outbreak.
So what do you need to know?
China’s government has publicly pledged to deliver on economic targets and support healthy growth of “internet platform companies,” according to a written statement that was issued following a quarterly economic meeting that Chinese President Xi Jinping chaired. Investors are cheering that news and are now bidding up BABA stock.
Prior to today, shares of Alibaba had fallen nearly 25% year to date to trade at $90. The company’s stock has declined 60% over the past 12 months.
What Happened With BABA Stock
A renewed outbreak of Covid-19 has resulted in several cities and municipalities across China being placed in lockdown, including the financial center of Shanghai. That has hurt business and manufacturing in the country and led to calls for economic stimulus.
With its announcement, China’s government has acknowledged that it is heeding the calls for economic stimulus, which investors see as positive. They are also taking the announcement as further evidence that China’s government is easing the crackdown it has executed on publicly listed companies, notably technology firms, over the past year.
Why It Matters
News that Beijing is ready to support the economy with new stimulus measures is welcome news for Alibaba, which has been one of the most punished Chinese companies over the last 18 months. Regulators in Beijing canceled its planned initial public offering (IPO) of its Ant Group and levied a record antitrust fine on the company. At one point, Alibaba founder and chief executive Jack Ma was reported to be in hiding.
Additionally, media reports have surfaced that officials in Beijing have entered into discussions with U.S. regulators about allowing onsite audit inspections of U.S.-listed Chinese firms in an effort to keep a majority of Chinese stocks listed on American exchanges. That news too is being trumpeted by investors as it removes the delisting threat for many companies.
What’s Next for Alibaba
BABA stock gets a reprieve today and a nice bounce higher. While the comments made by Chinese authorities are encouraging, it remains to be seen exactly what stimulus Beijing will provide. It is also unknown how long, or how bad, the current outbreak of Covid-19 in China will get. While Alibaba stock looks discounted at current levels, investors who take a position should be prepared to be patient and hold the shares long term.
On the date of publication, Joel Baglole 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.
