Following a terrible outing for most of this year, Chinese technology flagship Alibaba (NYSE:BABA) hopes to get an early positive start to 2023. Fortuitously, China announced that it will drop its quarantine requirement for inbound travelers, sparking optimism about an economic recovery. As well, Alibaba announced plans to launch its first metaverse project. BABA stock popped up 5% on Tuesday morning before settling around 4% up in the afternoon hours.
Easily the biggest catalyst for Chinese publicly traded companies centered on Beijing’s decision to axe its strict quarantine measures. Per Reuters, the new policy – which also includes dropping restrictions on the number of passengers on international flights – will take effect on Jan. 8. Currently, the protocol involved “five days of mandatory quarantine at a government-supervised facility and three more of isolation at home.”
Notably, China’s health authority stated travelers entering the country must still undergo PCR testing 48 hours prior to departure. Nevertheless, the new guidelines represent a sharp pivot from prior draconian mandates, thus boding well for BABA stock. Likewise, other Chinese enterprises such as JD.com (NASDAQ:JD) and Tencent (OTCMKTS:TCEHY) saw similar gains.
In addition, Alibaba’s e-commerce platform Taobao conducted final tests ahead of its first metaverse live-streaming product debut. Citing a Coingape report, Benzinga noted this project “will likely launch online around the upcoming New Year’s shopping extravaganza.” Earlier this year, Taobao began frequently releasing metaverse-related products.
Under the upcoming platform, users can navigate a virtual environment via avatars, enabling shopping experiences and interactions with other users. Further, popular brands like Swatch’s (OTCMKTS:SWGAY) Tissot have signed onboard.
BABA Stock Still Faces Tough Challenges
Although the latest news provided an encouraging backdrop for BABA stock, it still has some ways to go before proving a competent and reliable investment. While the dropping of coronavirus-related restrictions help considerably, China also carries a reputation for shifting gears on a dime.
Recently, the World Health Organization stated it was “very concerned” about China’s surge in Covid-19 infections. In addition, the entity voiced apprehensions about reports of severe diseases. Moreover, the sudden pivot from a draconian policy to an accommodative one left hospitals in the nation scrambling to cope.
Interestingly, despite the strain on China’s medical system, it reported a low number of deaths. This raises questions about the quality of such reports, which may negatively affect BABA stock since the government technically carries a credible reason to revert to restrictive mandates. In particular, the Japanese government is taking no chances, tightening borders for travelers from China on Dec. 30.
On the metaverse front, not every investor will likely regard the initiative as a positive for BABA stock. Most glaringly, sector giant Meta Platforms (NASDAQ:META) attracted severe criticisms for its massive investments in metaverse technologies. As well, the naysaying doesn’t appear unjustified. For the year, META fell around 65%.
Further, questions remain about the viability of the Chinese consumer economy. Throughout this year, cracks appeared on China’s previously burgeoning economy, raising some alarm about demand resilience. While removing the aforementioned Covid restrictions helps, it may take time for consumer spending to recover. Therefore, a cautious approach to BABA stock may still be warranted.
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.