BABA stock almost doubled in value this year, but investors need to wake up. You shouldn’t touch this stock with a 10-foot pole.
- Alibaba (NYSE:BABA) stock has soared over 100% since the March low, but started losing ground in the last few week.
- The Ant Group, an affiliate of Alibaba Group, received a no-go from Chinese stock exchange
- This situation looks like a Titanic in making, and investors should be cautious.
One of the biggest companies in the World was having a ball this year, with BABA shares gaining more than 100% in the last 6 months. But the trouble started when Shanghai Stock Exchange declined to approve the launch of Ant Group. Ant Group IPO was poised to become the biggest IPO ever.
I don’t need to tell you what happened next. BABA stock lost $35 per share in a single day.
Does anyone think Alibaba stock’s drop is justified?
Here is the thing with Chinese stock prices. If Chinese government thinks that you are getting bigger than China itself, you are on a road to hell. Ant Group issues around 10% of all of China’s non-mortgage consumer loans.
According to the charts and trading activity Alibaba stock was one of the most loved long term holdings among both small time investors and institutions. The company’s rise seemed unstoppable. Today Alibaba recorded $56bn in first post-virus Singles’ Day sales, beating 2019 high.
SO, why is BABA stock going down if the results show that shares should soar?
The answer is simple. Before these great numbers we received an information that you should pay attention at, especially if you invested in BABA.
Strong financials make Alibaba stock an insanely risky bet
Hong Kong’s Hang Seng Index maintained a turbulent trend throughout the day, and finally closed down 0.28% to 26226.98 points. The trend of technology stocks was sluggish. Five major technology giants, including Alibaba, Tencent Holdings, Meituan, JD.com, and Xiaomi Group, plunged across the board, dragging down the Hang Seng Technology Index again. The index fell 6.23% and closed at 7465.44 points.
Specifically, Meituan fell 9.67%, JD.com fell 8.78%, Alibaba shares fell 9.8%, Tencent fell 7.39%, and Xiaomi Group stock fell 8.18%. Market analysts believe that this may be related to the “Guidelines for Anti-monopoly in the Field of Internet Economy” issued by the Chinese General Administration of Market Supervision.
While Xiaomi plunge was probably due to fear, other companies on this list will probably be at the aim of the Chinese government going forward.
To make matters worse, Alibaba has a long track record of being the best in online sales. In a normal world this is a great news for stockholders, in China this means you are going down if you are not playing by the book.
With these 2 major problems, that happened in 10 days time, BABA share price level vastly exceeds any realistic valuation for the new short-term opportunity. Investors should sell Alibaba stock before shares crash back to pre-corona levels.
While the company will not struggle to survive without continued government support, stockholders should seek profits elsewhere for the time being.