Shares of Alibaba Group (NYSE: BABA) were sliding again today as further signs of weakness emerged in the Chinese economy.
In an effort to restore optimism about China’s recovery, the country reported 2023 gross domestic product GDP growth a bit early with China’s Premier Li Qiang saying at the World Economic Forum in Davos that the economy grew “around 5.2%.”
China has been known to manipulate the timing of economic data releases, and the earlier-than-expected update could be an attempt to influence public opinion.
What seemed to be more concerning was that Chinese authorities have reportedly been telling institutional investors not to sell stocks. However, that push seems to be having the opposite impact and could dash investor confidence that market prices accurately reflect interest from market participants.
As of 12:41 p.m. ET, the stock was down 3.1%.
Image source: Alibaba.
Assessing the Impact on Alibaba
There was no company-specific news out on Alibaba today, but the stock has proven to be highly sensitive to the Chinese economy over the past few years. Alibaba was at the center of Beijing’s crackdown on the tech sector, which seemed to be prompted in part by disrespectful comments made by Alibaba Founder Jack Ma toward Chinese finance ministers.
Since then, Alibaba has struggled with the broader weakness in the Chinese economy and the impact of regulations. For example, it abandoned a plan to spin off its cloud computing unit due to new chip export restrictions from the U.S. It’s also lost market share to Pinduoduo parent PDD Holdings.
Evaluating Alibaba’s Recovery Prospects
Alibaba is still solidly profitable and its revenue is growing. On a conventional valuation basis, the stock looks cheap at a price-to-earnings ratio of around 10, but pressure from Chinese officials against selling stocks will weigh on the sector.
Alibaba stock could recover eventually, but don’t expect a sudden surge in the stock anytime soon as there’s no sign of the broader Chinese malaise coming to an end.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
