In all likelihood, this narrative about Alibaba Group (NYSE:BABA) will arouse at least some debate. But my real intention is to get you to think longer term regarding international dynamics and how brewing megatrends – particularly demographics – impact investments like Alibaba stock.
As you know, the Chinese e-commerce and technology giant has made a relatively quick and robust recovery from the novel coronavirus. Additionally, Alibaba stock has enjoyed a very strong start for the month of June. Closing out the first week of this month, BABA went into the weekend a few cents shy of the $220 mark.
Of course, the easy explanation is that the company was a beneficiary of the stunning U.S. jobs report for May. Heading into the disclosure, several economists predicted doom and gloom, with an overall unemployment rate hitting 20%. Instead, the economy added 2.5 million jobs, bringing the jobless rate down to 13.3%.
While this obviously advantages American workers directly, the benefits are not exclusive to this country. Because we live in a globalized society, what’s good for us is often good for everyone else. Certainly, China is a recipient of U.S. bullishness. While relations between the two countries haven’t been the warmest, both are incentivized not to go overboard with their rhetoric.
However, this segues into a critical headwind for Alibaba stock. Over the last few weeks, President Donald Trump has ratcheted up the pressure, particularly calling out China for not being readily transparent regarding the Covid-19 pandemic.
To be blunt, while most of us can do without the straight-shooter approach, this is the only playbook that Trump has. With chaos economically and now societally, it’s not just voters that are frustrated.
Domestic Tensions a Backdoor Catalyst for Alibaba Stock
As my longtime readers can attest, I consistently emphasize the importance of megatrends. These catalysts create paradigm shifts that make certain industries or sectors incredibly relevant. By merely following these developments to their logical conclusion, you can dramatically improve your portfolio’s performance.
Here, the megatrend ties into demographic realities that have stoked conflicts and division. The cry for social equity has spread not only in the U.S. but throughout major international cities, such as London and Paris. And while these grievances stem from a genuine well of present and historical injustices, they are also likely to chill the millions of anonymous investors.
This one dynamic can end up becoming a backdoor catalyst for Alibaba stock. Let me explain.
On Friday, President Trump predictably touted the remarkable and surprising May jobs report. But what he glossed over was that this potential recovery is unbalanced. While White unemployment dipped from 14.2% to 12.4%, Black unemployment increased slightly to 16.8% from 16.7%.
Click to Enlarge
Significantly, the Black unemployment rate is now equal to the peak Black jobless rate during the Great Recession. That’s one of the less-discussed drivers of the present social unrest – Blacks and Whites are not enjoying the same magnitude of recovery efforts.
However, White households are not without their grievances toward this crisis. Though this demo’s unemployment rate saw a significant dip, this is the first time since records were kept post-World War II that White workers have seen their jobless rate move into double digits.
Also note that before the market collapse of 2008, Black unemployment hit 10% (in July). There was no way that any Republican would have won the presidential race. Right now, all demographics have suffered steeply, putting Trump in a bind.
But this conflict doesn’t affect Alibaba stock, at least not negatively.
Stability Should Trade for a Premium
As an investor, you are always trying to “control” for your variables. Obviously, you can’t account for everything as the coronavirus proved. But the more confidence you have regarding the catalysts for your target investment, the more you’re likely to pull the trigger.
In other words, stability attracts buyers.
Currently, stability is at a low point, especially for western regions. In addition to addressing the black swan event of Covid-19, the U.S. and now western Europe must contend with social unrest. As I showed with the economic demographics, this unrest is unlikely to resolve easily.
However, if you look at Alibaba stock specifically and China broadly, you don’t have the same level of discontent. No matter what your political views are, investors love stability. And it would not surprise me one bit if anonymous investors praise the protests with their lips, but pile into Chinese stocks with their wallets.
With China, you have a “one nation, one people” mentality. That’s very attractive for investors, even if a strong China contradicts their personal patriotism.
Look, I’m not suggesting that China doesn’t have problems, because it does. Undoubtedly, many are troubled with the human rights violations that occur there, among other negatives. But with the U.S. falling into one crisis after another, the Chinese markets provide a relatively quiet place to grow your portfolio.
For many, that’s too great of an opportunity to just ignore a flagship asset like Alibaba stock.
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.
