Shares of Alibaba Group (NYSE: BABA) were sliding due to signs of weakness in the Chinese economy. The country reported 2023 gross domestic product (GDP) growth around 5.2%, a figure disclosed much earlier than expected by China’s Premier Li Qiang at the World Economic Forum in Davos.
China’s history of manipulating economic data releases raises concerns about the timing of this update. Furthermore, reports of Chinese authorities instructing institutional investors not to sell stocks have generated apprehension. Rather than bolstering confidence, this directive seems to have an adverse impact.
As of 12:41 p.m. ET, Alibaba’s stock was down 3.1%. This dip reflects the broader unease in the market.
Image source: Alibaba.
Analyzing Alibaba’s Sensitivity to the Chinese Economy
Although no company-specific news surfaced on Alibaba, the stock has displayed high sensitivity to the Chinese economy. Following the tech crackdown initiated by Beijing, triggered in part by Alibaba Founder Jack Ma’s remarks directed at Chinese finance ministers, the company has grappled with broader economic weakness and regulatory repercussions. For instance, it had to forego a plan to spin off its cloud computing unit due to new chip export restrictions from the U.S. Additionally, it has lost market share to Pinduoduo parent PDD Holdings.
Can Alibaba Bounce Back?
Despite current challenges, Alibaba remains consistently profitable, with a growing revenue. From a conventional valuation perspective, the stock appears undervalued with a price-to-earnings ratio of around 10. However, the influence of Chinese officials discouraging stock sales exerts significant pressure on the sector.
It is possible that Alibaba’s stock could rebound in the future, but an immediate surge seems unlikely given the ongoing concerns surrounding the Chinese economy.