Why Alibaba ($BABA) stock is trending

Alibaba Group ($BABA) is one of the two largest technology stocks in China. Some even compare it to Amazon because of its large ecosystem and customer base. Nevertheless, in the past year this stock has suffered (down 49% since June 2021).

Why is that?
The USA has a very supportive government when it comes to businesses because they allow capitalism to take its course. China, however, has a different approach. They tend to mix capitalism with common prosperity. When they sense the wellbeing is being affected, they tend to intervene.

So what happened?
Last year they blocked a few companies from going public in the USA because of data privacy issues. That could be justified, but then, they stopped a domestic IPO (Initial Public Offering - when a company issues their shares on the stock market for the first time) of Ant Group. Most investors believe that was the tipping point that showed the clash between China government and Chinese Big Tech.

China went even further with imposed rules for large technology companies that scared most foreign investors into selling. As a result, Alibaba and others dropped severely.
This year, China has pledged to stop the »tech crackdown« and restore the balance on their stock market. Just last week, China's central bank accepted Ant Group's application to set up a financial holding company.

Why is this Ant Group so important?
Ant, via super-app Alipay, collects data from over 1 billion users, which is more than 3x the entire population of the United States of America. Many of these users are young, internet-savvy people without credit cards or sufficient bank credit records, as well as 80 million merchants. That’s a lot of data to process and exactly the reason why it’s such a high profile situation.

But how is this connected to Alibaba?
Alibaba owns a majority stake in Ant Group (32.65%), which basically gives them full control over the company. I will not go into the details of the IPO. However, the fact that China is now open to negotiate a potential Ant Group IPO signals the end of the »tech crackdown«. Consequently, companies such as Alibaba ($BABA) and Tencent ($TCEHY) could return to previous levels.
According to JP Morgan: »As China begins to reopen and Beijing signals some intent to ease its scrutiny on the tech sector, strategists are turning cautiously optimistic on the country.«

To Your Financial Freedom,