US-China Summit Echoes in Alibaba’s Stock Drop
The recent bilateral summit between US President Joe Biden and Chinese President Xi Jinping has drawn widespread attention from both media and analysts. While the meeting improved the atmosphere between the two countries, little progress was made in repairing their strained relations.
The aftermath of the summit was reflected in the sharp decline of Alibaba Group’s stock price. The Chinese e-commerce giant witnessed a 10% drop in Hong Kong trading on November 17, following a 9% decrease in the United States, resulting in a one-day loss that wiped out approximately $20 billion in market value.
The significant factor behind the stock fall was not solely attributed to the company’s second quarter results, where the revenue saw a modest 9% growth to $30.81 billion, but also to the shelving of its cloud business spin-off plans. The uncertain future of Alibaba’s Cloud Intelligence Group, exacerbated by the deteriorating US-China relations, prompted the company to postpone its spin-off plans and focus on developing sustainable growth models.
Impact on the Market
Amidst these developments, Alibaba’s founder Jack Ma revealed plans to sell 10 million shares worth around $870.7 million, which has further impacted market sentiment. As of November 17, 2023, Alibaba’s shares in the Hong Kong market have recorded a 15% decline this year, surpassing the average index drop of 11.2% for the Hang Seng Index.
Alibaba, once the most valuable stock in Asia, has seen its market value plummet to one-fourth of its peak after facing accusations of monopolization and undergoing reorganization in China’s technology sector.
Signs Reflecting China’s Economy
Analysts have long viewed Alibaba’s performance as an indicator of China’s consumption-driven economy due to its status as the country’s largest e-commerce platform. However, amidst the challenging economic landscape in China, characterized by a slow recovery from the COVID-19 outbreak and a crisis-ridden real estate market, Alibaba’s latest financial results have underscored the struggles in the technology sector.
Despite posting a 9% revenue growth in the July-September quarter, Alibaba fell short of analysts’ profit expectations, reflecting the broader economic challenges faced by China. Joseph Tsai, Chairman of Alibaba, expressed optimism for a more stable atmosphere within China, citing strong user growth and improving retail platform performance.
Challenges for China’s Tech Sector
Alibaba’s recent setbacks also shed light on the difficulties faced by China’s technology sector, exacerbated by US restrictions on microchip exports. The ripple effects of this policy have reverberated across other technology stocks, including Baidu, signaling a broader challenge for the sector.
Amidst attempts to develop artificial intelligence, the scarcity of new AI chips, such as NVIDIA’s latest flagship model, has posed a significant obstacle for Alibaba’s technological aspirations. Furthermore, Tencent has raised concerns about the impact of US measures on its cloud business, emphasizing the pervasive challenges facing Chinese technology companies.
As China grapples with constraints on accessing crucial technology components, the future of its tech sector remains uncertain.
The bilateral summit between US President Joe Biden and Chinese President Xi Jinping that ended has been echoed by many media and analysts. Despite improving the atmosphere between the two countries, little progress has been made in efforts to repair relations between the two countries.
One sign that resonated the next day was the company’s stock price “Alibaba Group” The Chinese e-commerce giant fell 10% in Hong Kong trading on Friday, November 17, after closing down 9% the night before in the United States, a one-day decline. “The hardest hit in 2023” and wipe out about $20 billion in market value.
The important factor that caused the stock to fall was not so much due to the results of the 2nd quarter of July-September, where the company’s revenue grew by only 9% to 30,810 million dollars (about 1.08 trillion baht), but due to spinning leave – off plans “Cloud Business” which is the future of the company But this future is darkened by the effects of worsening relations between the United States and China.
Alibaba originally wanted to spin off its cloud business group, Cloud Intelligence Group, or “Ali Cloud,” to become independent and list it on the stock exchange. In order to fully compete in the cloud market with major players in the United States such as Amazon Web Services (AWS) and Microsoft Azure (Azure).
Alibaba’s statement said the US measures ban the export of microchips to Chinese companies. This causes uncertainty in the direction of the cloud. Intelligence Group and could cause the shareholder’s intention to increase the value of this business not to be as expected. Therefore, the company had to postpone its spin-off plans. and instead focus on developing sustainable growth models under these difficult to predict circumstances.
Meanwhile, before reporting the results of the second quarter, Alibaba also reported to the stock exchange that Family Trust “Jack Ma” Alibaba’s founder plans to sell 10 million shares worth about $870.7 million.
“Although it is no longer related to administrative work But we believe that Ma’s sale of Alibaba shares during this period of low prices It could affect the market sentiment,” Kenneth Fong, an analyst at UBS, told Reuters.
As of November 17, 2023, Alibaba’s shares in the Hong Kong market have fallen 15% this year, which is higher than the Hang Seng Index’s average decline of 11.2%.
Alibaba was once the most valuable stock in Asia. At its peak, the company had a market capitalization of around $830 billion in October 2020, before a major reorganization of China’s technology sector. It is centered around Alibaba, which has faced accusations of monopolization and others. As a result, Alibaba’s current market value has fallen to just one-fourth of its peak.
Signs reflect China’s economy
CNBC reports that In the past, Alibaba’s performance has often been viewed as an index that reflects the state of the Chinese economy in terms of consumption. Because it is the largest e-commerce platform in the country
Economists expect China’s economy to bounce back after the outbreak of COVID-19. last year But the recovery was not fast enough as expected due to the drag on the real estate market which was facing a major crisis. and various structural problems in China, also dragging down the country’s overall recovery.
In its July-September quarterly results, Alibaba’s revenue grew 9% to 224.4 billion yuan, in line with analysts’ expectations. But it had a net profit of 27.7 billion yuan (about 133 billion baht), which fell short of analysts’ expectations of 29.7 billion yuan.
Joseph Tsai, Chairman of Alibaba, said that despite the fluctuations in the global market, But the company is entering a period of more stable atmosphere in China. He said domestic retail platforms such as Taobao and Tmall have seen strong user growth. As well as purchases during the recent 11-11 Singles Day festival, which also grew better.
Warning signs for China’s tech sector are not bright.
The latest situation at Alibaba further highlights the obstacles in China’s technology sector. which has been affected by measures restricting the export of microchips from the US This makes it more difficult for China to access US chipsets.
According to the website Investing.com, Alibaba’s trend has dragged down other technology stocks, such as: BaiduaA decade
Although Alibaba focuses on the development of artificial intelligence (AI), especially the new generation of AI (Gen AI), there is a shortage of new AI chips. Especially the latest flagship AI chip from NVIDIA, the H200 model, which was launched recently. It can affect the company’s development plan.
The US restrictions have also affected other Chinese technology companies. Tencent has warned that the US measures could hurt its cloud business. The company has already stocked some Nvidia chips. But they must also look for chips from China as a backup option.
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