Once the proud technology juggernaut of a fast-rising China, Alibaba (NYSE:BABA) now finds itself in an unusual position: struggling for air amid severe fundamental headwinds. On Monday, BABA stock found itself printing an ugly loss exceeding 15% in the afternoon session. Primarily, the bearishness centered on Beijing’s consolidation of power.
Recently, the 20th Chinese Communist Party Congress — a key political summit held every five years — concluded, confirming President Xi Jinping’s historic third term. According to Barron’s, this latest development makes Xi the longest-serving leader since Mao Zedong. It also breaks with precedent regarding the limitation of administrations to two terms.
However, the news delivered poor forward implications for BABA stock. Following the bursting of China’s equities market bubble in 2016, BABA in a multi-year bull run that peaked in October 2020. Shortly thereafter, per the Wall Street Journal, shares tumbled.
For one thing, Beijing halted the initial public offering of Alibaba’s financial-technology affiliate Ant. Later, the government launched an antitrust investigation into Alibaba. As well, Chinese regulators began targeting BABA’s big tech peers under a broad crackdown.
At the time of writing, BABA stock trades hands at $61.22. This price point pings conspicuously lower than Alibaba’s initial offering price of $68 in 2014.
BABA Stock Courts a Cloudy Future
To be sure, the consolidation of power in China does not represent an exclusive headwind for BABA stock. For instance, JD (NASDAQ:JD) finds itself down nearly 15% on Monday afternoon. Additionally, Tencent (OTCMKTS:TCEHY) fell nearly to the same magnitude. Fundamentally, anxieties center on the continuation of repressive economic and social policies that will poor cold water on market reform hopes indefinitely.
It’s not just a matter of Xi’s third term. Per Barron’s, the current president also appointed loyalists in every other top position. Therefore it implies, at best, business as usual with little realistic prospects for change.
“While Chinese politics have long been opaque, this sharp consolidation of power is adding to investor unease. Equity valuations, already near a 10-year trough, will likely face more pressure if international investors demand a higher risk premium,” said Mark Haefele, UBS Global Wealth Management’s chief investment officer.
As well, Bloomberg points out that headwinds might extend beyond BABA stock and its tech peers. The political power play “adds to concerns that China may hold back for longer on fully reopening its economy, with fewer voices at the apex of power to question Xi’s Covid Zero policies.”
In other words, it’s Xi’s way or the highway. And that will not only pressure BABA stock but the viability of China’s business ecosystem.
On the date of publication, Josh Enomoto 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.
