27 May 2020

Investors Shed Alibaba Shares on US-China Tensions

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the markets today

     

What’s happening: Shares of Alibaba Group Holding moved lower despite the Chinese ecommerce giant reporting stronger-than-expected results for its fiscal fourth quarter.

What happened: The coronavirus pandemic has led to a surge in ecommerce, with lockdowns pushing customers to buy everything online. Backed by this buyer behaviour, Asia's most valuable tech company beat expectations on various parameters, including revenue, earnings and active customers for its latest quarter.

Alibaba’s gross merchandise volume also reached the $1 trillion mark, driven by a rise in its online merchants. These positives were overshadowed, however, by geopolitical tensions, which led to a decline in the company’s stock.

How were the results: The ecommerce giant reported growth in both revenue and earnings for the fiscal fourth quarter.

  • Revenue climbed 22% to $16.14 billion, exceeding the consensus view of $15.1 billion.
  • Adjusted earnings came in at $1.30 per share, versus $1.28 per share in the same quarter last year. The figure was way ahead of the expectations of 85 cents per share.

Why it matters: Alibaba has lost over $70 billion in market valuation since the covid-19 outbreak began at the start of the year. Management warned in February that the outbreak had negatively impacted its supply chain and logistics with production also being hampered by store and factory closures. The company’s business began improving in March and has been on an upturn since.

The company began witnessing a rise in consumers using digital technology to buy essentials and other products during the pandemic. Alibaba's cloud business also spiked, resulting in 58% revenue growth in the latest quarter.

The company closed March with 726 million users on its platform, a rise of 2% versus the December quarter. Alibaba’s monthly mobile active users also grew by 2.7% to 846 million.

Management projected revenue of 650 billion Chinese yuan (approximately $91 billion) for fiscal 2021.

While Alibaba battles to provide delivery and maintain its cloud services during the pandemic, the company just faced another blow. This time from the US President, who has been targeting China since the beginning of his tenure.

The passing of a bill by the US Senate last week means that some Chinese companies, including Alibaba, could be barred from being listed on US stock exchanges. Investor concerns around this overshadowed the ecommerce giant’s strong performance in the latest quarter. The bill was passed after Chinese firm Luckin Coffee was alleged to have fabricated its revenue figures.

How the shares responded: Shares of Alibaba dropped around 4% in Hong Kong’s trading on Monday, followed by a 6% decline in New York on Friday. The company’s shares have declined 1.3% in the past month and have shed more than 3% in the past three months.

What to watch: With markets concerned about relations between Beijing and Washington, Alibaba’s stock is likely to face some heat. Investors remain bullish, however, about Alibaba’s performance in the near term.

The Markets Today

     

European markets will be in focus today, after stocks closed higher on Tuesday.

Context: European stocks ended higher in the previous session, with growing optimism around the reopening of economies. A potential covid-19 vaccine also boosted market sentiment.

Details: Investors continue to assess recent developments to control the pandemic, with US firm Novavax announcing the start of human trials for its coronavirus vaccine. Meanwhile, pharma giant Merck also announced plans of working with research organisation IAVI to develop a vaccine.

The pan-European Stoxx 600 index closed higher by 1.1%, with most sectors closing in positive territory. Travel and leisure stocks were the top performers, climbing as much as 7% on Tuesday.

Shares of Tui spiked a whopping 50% on Tuesday, following reports of Spain and Germany easing travel restrictions. ArgenX’s stock climbed around 30% after the Dutch biopharmaceutical company reported positive results from its clinical study for neuromuscular disease. Diasorin bucked the market trend, however, as its shares declined close to 6% after Jefferies downgraded the Italian biotech stock to Underperform.

The FTSE 100 rose 1.24%, German 30 gained 1% and French 40 closed higher by 1.46% in the previous session.

What to watch: Investors await remarks from European Central Bank’s President Christine Lagarde, along with economic reports from France, including the consumer confidence indicator, industry climate indicator and business climate indicator.

Investors will continue to monitor coronavirus figures, with the number of infections surpassing 5 million globally. Britain has confirmed over 266,590 cases, while total cases in Spain are around 236,250.

Other Markets: US indices closed higher on Tuesday, with the Dow, S&P 500 and Nasdaq 100 up by 2.17%, 1.23% and 0.17%, respectively.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Indonesia’s loan growth, Mexico’s unemployment rate, Canada’s value of building permits, Argentina’s balance of trade as well as the US MBA mortgage applications, Redbook index, Richmond Fed manufacturing index, Fed Beige Book report and API crude oil stock change.

 

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