Chinese stocks are in the red today following the high-profile meeting between President Joe Biden and Chinese President Xi Jinping. Alibaba (NYSE:BABA), JD.com (NASDAQ:JD), Baidu (NASDAQ:BIDU), Nio (NYSE:NIO) and XPeng (NYSE:XPEV) are each down 2% or more heading into the afternoon.
What’s behind today’s China stock slump?
Well, it seems the dip in some of China’s largest companies can be tied to two major causes: Alibaba and the U.S.-China Summit.
Indeed, e-commerce giant Alibaba reported earnings today for its September quarter and, while the financial results were promising, some investors were left disappointed by the company’s decision not to pursue an initial public offering (IPO) for its cloud division.
Investors have been eagerly awaiting a series of potential Alibaba spinoff companies since the company announced the move back in March. At the top of the list is its cloud computing division, which also captures its artificial intelligence (AI) technology.
Unfortunately, Alibaba has quickly snuffed out the possibility, citing the impact of U.S. export regulations of certain computer chips. The company has stated that it would rather enhance its cloud business’s value as a sector of the Alibaba Group.
“In the AI-driven world, to develop a fully grown business based on a very networked and highly scaled infrastructure, it requires investment,” said Joe Tsai, Alibaba Chairman. “We would rather show investors through our operations of the cloud business rather than spinning it off.”
Not alone, Alibaba also opted not to spin off its Freshippo grocery branch as its evaluates “market conditions and other factors that would contribute to a successful transaction to enhance shareholder value.”
Why Are Chinese Stocks Down Today?
Today’s news comes as a major disappointment to investors, who had long been looking forward to a diverse offering of new Alibaba stocks. The company’s earnings call was otherwise very successful, however. Alibaba did well on both revenue and profit projections and even announced its first-ever dividend to shareholders.
At the time of this writing, BABA stock is down more than 9%.
Finally, investors in Chinese stocks may also be disappointed by a lack of progress made on the diplomatic front. While Joe Biden and Xi Jinping have shared pleasant conversation, the two have yet to make progress on the stifling tariffs in place on goods exchanged between the U.S. and China, including semiconductors.
On the date of publication, Shrey Dua 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.
