Its probably quite clear now that the worst is over for Chinese technology companies. At the point of writing, Alibaba is up 82% from its lows in Nov 2022!
If you’re wondering if Alibaba is finally on a bull run and are thinking a position, read on to find out.
5 Reasons Alibaba might finally be on a bull run
We have identified 5 reasons that we use as a gauge on market sentiments and to assess if Alibaba is finally on a bull run:
- Share price momentum shows recovery
- Continued momentum of positive news flow
- Easing of monetary and fiscal policies
- International relations in a benign situation
- End of COVID-zero policy
#1: Share price momentum shows recovery
Let’s look at Alibaba’s share price momentum from a technical analysis perspective:
Looking at the chart above, we can see that Alibaba had bottomed and is currently approaching the first Fibonacci resistance level which is about US$118 to $125. This was also where the stock previously failed to break through the resistance twice in March 2022 and July 2022
BABA had been in an uptrend channel since April 2022, during which it also made a double bottom. While not presented in the chart so as to maintain clarity, there is also a golden cross formed as Alibaba’s 200-day moving average broke above its 50 day moving average.
Looking at the chart above, we can see that the next resistance levels would be around US$126. However, we can see that the RSI is weakening.
Should the share price fall below the mid range of its upward ranging channel (about US$108), or below the bottom of its channel of about US$97 (which also coincides with the 20MA), this would potentially indicate the end of the bull run.
#2 Continued momentum of positive news flow
Since the day the Politburo called for regulators to act in alignment and support the platform economy with investigations being wrapped up, there has been a continued momentum of positive news flow.
The SEC in the US gained unfettered access to the audit documentation of public accounting firms headquartered in mainland China and Hong Kong for the first time in history, allowing them to review the audit files of Chinese companies listed in the US and the review was concluded without any newsworthy findings.
Alibaba has also started turning its attention back on growth after focusing on compliance in recent years with an investment of over US$1 billion in a logistics hub at Istanbul Airport and a data center near the Turkish capital of Ankara.
The Chinese government has also moved to take minority stakes of less than 1% with special rights in the Alibaba and Tencent. These golden stakes are bought by government-backed funds or companies which gain a board seat and/or veto rights for key business decisions.
Another positive sign was the signing of an agreement to deepen strategic cooperation between The municipal government of Hangzhou, where Alibaba is based. The government also praised Alibaba for helping the local economy and pledging unswerving support for its development. Government authorities also visited Ant Group after Alibaba and Ant founder Jack Ma agreed to relinquish overall control of the fintech group.
#3: Expansionary monetary and fiscal policies
China has been on a path of easing monetary policies and expansionary fiscal policies for the last few years as it struggled to combat Covid. Despite China’s reopening, China is expected to continue expansionary policies as the rest of the world has slowed down.
In 2023, the PBOC reiterated a pledge to focus on stabilizing growth, employment and prices, and to push for an overall improvement of the economy. Officials have also said that monetary stimulus in 2023 will be at least as strong as 2022, and policy will be focused on supporting domestic demand.
The strong USD was a minor inhibiting factor in PBOC reducing interest rates in China as a widening interest rate differential would weaken the Chinese Yuan and increase inflation as imports become more costly. With a weakening USD expected in 2023 and expectations of the end of the interest rate hike cycle by the Fed, this would leave some room for the PBOC to implement its expansionary monetary policy.
#4 International relations in a benign situation
There has not been any recent news between the US and China. The US CHIPS Act did not escalate into a tit for tat reaction by China although China did announce increased investments to build up its semiconductor industry. In addition, Russia implemented a temporary ceasefire in Ukraine for 36 hours between 6 Jan and 7 Jan which could be viewed as a positive sign.
#5 End of COVID-zero policy
After three long years, China’s borders have finally reopened, marking the end of COVID-zero policy. This reopening comes as the virus continues to spread in China amid a lack of transparency. The reopening is expected to benefit industries such as tourism, travel and other consumer spending related industries. We also recently covered the surprise winners of China’s COVID reopening policies.
Closing statements
We have listed five reasons why we think Alibaba is finally on a bull run.
In addition, Ant Group founder Jack Ma ceded control of Ant in a key revamp that is likely aimed at pleasing regulators after regulators scuppered Ant’s US$37 billion IPO, which would have been the world’s largest, cancelling it at the last minute in November 2020, leading to a forced restructuring of the fintech firm.
While a relinquishing of control could clear the way for Ant to revive its IPO, the changes announced meant that there would be a further delay due to listing regulations. Hong Kong requires companies to wait one year after a change in control to list. The wait is two years on Shanghai’s Nasdaq-style STAR market and three years on the A-share market.
Hence while the bull run is here, investors should be aware that there are fundamental issues capping Alibaba’s upside potential and a recovery path to its previous all time highs is yet to be seen.