Alibaba Shares Drop Too Low Due To Pressure From Chinese Authorities
Shares of Alibaba (BABA) on the NYSE fell 4.9% on Tuesday, to their level two years ago, due to the release of tighter antitrust rules from China. Market analysts point to five key factors influencing the decline in stocks.
Shares of Chinese tech companies in the US have dropped sharply over the past six months amid increasing scrutiny from the Chinese and US authorities. The NASDAQ OMX Chinese Technology Index has fallen more than 42% over the past six months.
Shares of Alibaba Group (BABA), one of China’s largest tech companies, were down 35.85% in six months and fell 4.9% on Tuesday, to the same price as two years ago.
On Tuesday, the country’s primary market regulator released a new draft regulation prohibiting Chinese internet companies from using coercive exclusive contracts, link blocking, and competitor app blocking practices.
Alibaba was already fined a record $ 2.75 billion in April due to its anti-competitive practice of exclusive contracts with sellers on its e-commerce platforms. For example, retailers on Alibaba’s marketplaces had to choose between Alibaba and Taobao or JD.com. According to regulators in China, this “excluded and limited competition” in the domestic online trading market.
Alibaba will no longer be able to impose requirements for using, for example, only one payment system on its platforms.
Alibaba’s competitors listed in the US: JD.com. (JD), Pinduoduo (PDD) and Chinese search engine giant Baidu (BIDU) fell to lows on Tuesday.
In addition, Chinese companies face tighter regulations in the US market.
The US Securities and Exchange Commission (SEC) amended the Foreign Companies Accountability Act. Now foreign companies that do not provide detailed information on their financial balance to the US authorities face delisting from American exchanges.
The market is massive and active options for the fall of Alibaba shares to $ 170 per share.
According to data from Cboe Global Markets, among the most popular options linked to Alibaba were stock-linked put contracts at $ 170. These put options allow the trader to sell the stock at a specific price later.
Alibaba shares closed Tuesday at $ 173.7 per share.
George Ball, chairman of investment firm Sanders Morris Harris, said traders are worried about potential growing pressure from the Chinese authorities and the risk that the government will adopt even stricter rules.
Uncertainty is the main reason why investors are still refusing to buy shares of Chinese companies, to take advantage of their substantial decline and favorable price.
Previously, the media reported that Beijing might require Alibaba to spin off its media business due to concerns about the company’s growing public influence.
Alibaba owns the leading English-language daily newspaper in Hong Kong, the South China Morning Post. The company also has stakes in the popular Chinese social media platform Weibo like Twitter (TWTR) and the online video platform Bilibili and other media and advertising.
