The last several weeks haven’t been the most stable in terms of geopolitics. Therefore, Alibaba (NYSE:BABA) initially doesn’t strike you as a sound investment. Further, Alibaba stock has incurred some volatility recently due to less-than-stellar employment and economic data in the U.S. Therefore, many investors are still hesitant on their stance toward BABA shares.
In addition, with Alibaba being the flagship company of China, its equity has a binary component. To clarify, if the world’s second-biggest economy recovers to its pre-pandemic level, it’s game on for Alibaba stock. But should key metrics disappoint, we could see shares tumble.
And let’s be completely honest – China doesn’t exactly give investors right now the warm and fuzzies. For instance, while the U.S. suffered an unprecedented jump in unemployment rates in the modern era, China’s jobless rate officially stands at only 6%. Raising even more eyebrows, this metric was only 5.3% in January, according to the Wall Street Journal.
Clearly, the fundamentals don’t align with what the nation’s government is printing on paper. Thus, investors have skepticism toward Alibaba stock.
While I’m not going to dismiss the Chinese technology firm’s troubles offhand, BABA may be better positioned to handle this global crisis. Here are three reasons why.
Alibaba Stock Benefits from Continuity of Government
Unless you’ve completely isolated yourself from society, you know that calls for equality and justice reign supreme in American politics. Judging from the immense support from coast to coast, it appears most of us sympathize with these demands.
But what has helped contribute to some of the volatile sessions in our stock market – and will continue to do so for at least the next four months – is the present divisiveness. Simply, many folks have dug their heels in ideologically, unwilling to dialogue with those who hold opposing views.
As you might imagine, this divide has erupted into chaos and sometimes acts of violence. Early in June, estimates pegged that the property destruction and looting will cost insurers at least $25 million in Minnesota alone.
And that’s just the “headline” cost. Imagine the collective opportunity costs as innocent people are displaced from their places of employment. This is a challenge that America will have to face, whoever is elected President.
But this social crisis is something that the Chinese won’t have to worry about. With their government removing term limits for the presidency, President Xi Jinping could rule well beyond 2023.
Of course, that sounds nuts for us Americans. We’d probably never agree to such changes. However, it’s a huge benefit to Alibaba stock, irrespective of your political views. After all, markets love stability and consistency. Thus, if you want to remove some variables in your portfolio, BABA is a surprisingly good idea.
Quicker, Cohesive Responses to the Coronavirus
Before record-breaking daily coronavirus infections started exploding back home, China saw a dramatic resurgence of the virus. That prompted Beijing to enter into a “wartime emergency mode.” Quickly, the government moved to test potentially infected citizens, along with imposing quarantines on affected areas.
Granted, these are draconian actions. But according to recent media reports, they worked. Chinese health officials have declared the fresh outbreak contained and that the “daily increase in cases has now mostly fallen to single digits.”
Some experts argue that this gives us insight as to how our government must respond to a potential second wave. In other words, continue mass-scale testing and quick, concerted action against suspected hot spots.
But the problem that I see is that, going back to my first point, we lack governmental cohesiveness. With sharp ideological division comes mistrust. Unfortunately, mistrust is a killer when you have a national emergency.
Complain all you want about China’s authoritarian government. If it doesn’t like something, it will crack down immediately. From a pure investment angle, this level of almost total control is appealing. Therefore, it adds an advantage to Alibaba stock that you won’t get in most American assets.
China Holds the “Trump” Card
Before the pandemic struck, Wall Street was sitting pretty. In late 2019, the U.S. and China agreed to a phase one trade deal. Thus, many individual names from both sides of the Pacific jumped higher. For all his bluster, President Trump knew that his best chance for reelection is a strong economy.
You just don’t get there with a trade war, especially with China.
In order for the global economy to recover, the Chinese consumer must spend. Ultimately, that means sitting down at the negotiating table – and probably sooner rather than later.
If recent history is any guide, any deal will be positive for both countries’ economies. Thanks to the other factors I mentioned, Alibaba stock may turn out to be the biggest winner of them all.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.