During the Chinese National Holiday last week, the absence of bad news sent Alibaba (NYSE:BABA) off lows. Alibaba bottomed from around $140 to $162. The stock still faces technical and fundamental troubles. It needs buying momentum to overcome them.
Last week, value investors looking at Alibaba’s past $319 high are betting that China’s government will ease restrictions. Buyers reason that the government is preoccupied with managing the massive de-leveraging of its real estate property market. Plus, it does not want to hinder Alibaba’s e-commerce growth further. Already, homeowners are suffering from falling wealth. Others are faring worse, owning EverGrande property that is nowhere near finished.
Investors are too optimistic. They are taking risks by betting that the Chinese Communist Party will stop adding new restrictions against Alibaba. BABA stock has no importance to the government. It only needs to weaken the wealth of its owners and distribute its worth to the common people. This could hurt Alibaba’s allowable growth and profit rates. Should the government limit its profitability and impose higher taxes and penalties, BABA stock will suffer.
Investors who want a basket of e-commerce stocks based in China may consider CQQQ or KWEB ETF stock. They do not depend only on Alibaba. The ETF offers diversification. Eventually, the region will resume growth. Investors may own those ETFs to participate in the long-term upside.