It has not been the best way to end the year for Chinese stocks as first, electric vehicle maker Kandi (NASDAQ:KNDI) was hit with fraudulent accusations about their sales reporting and now, the Chinese government is investigating Ali Baba ($227.74|0.42%). Founder Jack Ma has been in the government’s bad books ever since he criticized government officials in a speech at a summit in Shanghai at the end of October.
The resulting backlash saw Ma’s fintech IPO for Ant, one of the largest IPOs in history, delayed until 2021. Now, Jack’s conglomerate Ali Baba is being investigated for antitrust and monopolistic allegations, not dissimilar to the ones Mark Zuckerberg faced in the United States for Facebook ($318.09|0.98%).
The announcement saw Ali Baba’s stock plummet by nearly 14% and accounted for a near $100 billion decrease in market value. The drop is unprecedented for Ali Baba which has become one of the more solid and reliable companies in the world and is the second largest in China after Tencent. Shares are now trading at over 30% below its 52-week high price of $319.32 and have fallen 26% since the October summit where Ma spoke.
For now, it is unclear how long this investigation will last, although the Ant IPO was delayed for months so that could be an indication of how serious the CCP is taking this. The People’s Bank of China also reported that China’s four financial regulators will meet with ANT before the IPO date to instill regulations and supervision. This is just another reminder of how much control the CCP has over businesses that operate in China and is a big reason as to why many American investors steer clear of Chinese stocks.
While the CCP is flexing its political muscle over Jack Ma and the other Ali Baba executives, they will probably also proceed with caution. Ali Baba is an important piece to the Chinese economy and Jack Ma is a very powerful businessman with ties all over the world. Coming down too hard on Ali Baba may also scare off American investors who provide plenty of equity to Chinese companies trading on American exchanges.
So is Ali Baba a buy on this dip? Probably, although an immediate return to previous price levels seems like a stretch. Investors can expect the CCP to drag their investigation out to try and teach Ma a lesson, but ultimately Ali Baba should return to normal operations sooner rather than later. The risk of course is investing in a Chinese company that is clearly on the CCP’s radar. The CCP is trying to crack down on the big tech companies that act similarly to the FAANG stocks in America, with Ali Baba, Tencent (TCEHY), JD.com ($76.82|1.69%), Pin Duo Duo ($135.46|3.32%), Meituan, and Didi Chuxing making up a bulk of eCommerce business in China.
For now, it seems like an unnecessary risk to take while the black cloud hangs over Jack Ma and Ali Baba, but investors should keep tabs on the investigation as the stock is a bargain at its current price levels.
Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.