Insights

Why Alibaba Rose 17% This Week

What happened

Shares of Alibaba (NYSE: BABA) soared 17.3% this week compared to where they closed out last Friday, according to data from S&P Global Market Intelligence, as Chinese-listed stocks rose on hopes the regulatory crackdown Beijing has been waging was coming to an end.

Although there has been speculation for weeks that it would be easing, The Wall Street Journal reported that regulators are reportedly finishing their investigation into Didi Global (NYSE: DIDI) and will restore its apps to app stores soon.

So what

China began a crackdown on the tech sector two years ago after livestream gaming companies Huya (NYSE: HUYA) and DouYu (NASDAQ: DOYU) sought to merge, a deal that would give Tencent (OTC: TCEHY) an 80% share of the market as it owned stakes in both companies.

The purpose of the enhanced regulatory scrutiny was ostensibly to inhibit antitrust activity, but it soon spread across the internet tech sector. Alibaba’s Jack Ma did no one any favors, most of all himself, when he gave a speech criticizing the “pawnshop” mentality of regulators toward banking. That immediately brought his Ant Financial business into focus just as it was preparing to go public.

The IPO was scuttled and Ma ended up going into hiding for months, keeping such a low profile that people worried if something had happened to him. Alibaba itself ended up getting caught up in it.

Regulators began calling for the internet giant to be broken up, with its media interests sold, and it was eventually slammed with a $2.8 billion fine for so-called anti-monopoly behavior. Other companies, like Didi Global, ended up coming under scrutiny too and there were threats Chinese companies would be forced to delist from U.S. markets.

Now what

Last month the first signs of a thaw appeared as Beijing announced it would be more supportive of Chinese companies and would pursue measures that would bolster their “healthy development.” 

Bloomberg quoted Vital Knowledge founder Adam Crisafulli as saying the regulators’ decision on Didi Global was “the most tangible sign that the government is in fact easing back on its regulatory scrutiny of the tech industry.” 

Chinese stocks in general were surging, with the Hang Seng Tech index, which represents the 30 largest tech stocks listed in Hong Kong, rising almost 5% in one day after regulators approved 60 new gaming licenses. It’s still down 15% year to date, but that’s a better performance than the tech-laden Nasdaq 100, which remains down nearly 28% in 2022.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tencent Holdings. The Motley Fool has a disclosure policy.

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