Dip-buyers may be tempted to jump headfirst into a trade with Chinese e-commerce giant Alibaba (NYSE:BABA) stock. However, timing is everything in the financial markets and traders must be careful.
BABA stock gets a “D” rating now as China’s president has officially secured a third term, and this is a cause for concern as political conditions could be unfavorable for Alibaba.
International investing can be complicated. It’s not recommended for some people because not everyone has the time or inclination to monitor economic and political developments abroad.
Unfortunately, some traders may choose to invest in Alibaba without conducting their due diligence. They might hit the “buy” button just because the share price is down. That could be a poorly timed move, however. For years to come, Alibaba will likely have to face an uphill battle against a sometimes business-unfriendly Chinese leader.
| BABA | Alibaba | $65.93 |
What’s Happening with BABA Stock?
Suffice it to say, BABA stock hasn’t rewarded its investors in 2022. Alibaba doesn’t pay a dividend, and the share price has declined from more than $130 to the low-to-mid $60s this year.
Tensions between the U.S. and Chinese governments certainly didn’t bolster the bull case for Alibaba. On top of that, Chinese President Xi Xinping (commonly just referred to as “Xi”) has imposed on-and-off zero-Covid policies. These policies have made it more challenging for China-based commerce companies like Alibaba to conduct business.
It probably also hasn’t helped that Alibaba hasn’t provided a quarterly financial update in a while. The most recent report, from the quarter that ended on June 30, 2022, indicated a 30% year-over-year downturn in Alibaba’s net income and a 29% decrease in the company’s non-GAAP diluted earnings per share (or EPS).
Xi’s Third Term Spells Trouble for Alibaba
Adding to Alibaba’s troubles is the fact that Xi recently secured an unprecedented third term as China’s president. Xi has been known to favor very strict and prolonged Covid-19 lockdowns and to sometimes make it difficult for private businesses to thrive.
Experts in politics and finance sounded alarm bells soon after Xi’s third term was confirmed. For instance, Xin Sun, senior lecturer in Chinese and East Asian business at King’s College London, suggested that no one would challenge Xi’s “policy mistakes” that may hinder the growth of China’s tech sector.
It is “unlikely” for Xi’s restrictive “policies to be reversed or corrected, leading to an extremely gloomy economic outlook,” Sun concluded. Meanwhile, Justin Tang, head of Asian research at United First Partners, cautioned that “Tech stocks have never been the best friend of Xi.”
Adding to the cautious chorus is Mark Haefele, chief investment officer at UBS Global Wealth Management. Chinese equity valuations, Haefele asserts, “will likely face more pressure if international investors demand a higher risk premium.”
Be Cautious with BABA Stock
We’re assigning BABA stock a “D” rating but not an “F” rating because the situation isn’t completely hopeless for Alibaba. However, it appears that Xi will maintain power over China for a while. This is problematic for Alibaba, as the aforementioned experts explained.
Over the coming years, China’s commerce businesses will have to contend with a notably restrictive political regime. So, don’t feel the need to rush into any financial trades. Instead, it’s perfectly fine to adopt a wait-and-watch policy.
Don’t get the wrong idea. There’s no need to panic-sell any Alibaba shares you already own. Just understand that, if you’re invested too heavily in Alibaba, the company’s problems will be your problems, too.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Louis Navellier had a long position in BABA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
