Posted on January 25th, 2021
Alibaba Group Holding Ltd. ADR (BABA) has faced a rocky journey over the past year, forging its way upward following a dip near the start of the coronavirus pandemic in spring 2020, then stumbling again between November 2020 and January 2021. Despite challenges, Alibaba outperformed the S&P 500, rising by approximately 22% as of January 22, 2021, compared to the S&P’s gain of about 19% over the past year. Alibaba recently moved up in ranking on the WhaleWhisdom Heatmap, achieving an impressive ranking of 5, up from 22.
Alibaba is a Chinese multinational holding company specializing in technology, e-commerce, and retail. The company also provides Internet infrastructure and content services through its subsidiaries. While Alibaba initially saw growth slow due to pandemic related shutdowns worldwide, sales ultimately rebounded as shoppers’ habits shifted more towards online retail. Alibaba’s dominance in China’s online shopping market has only strengthened in the past year. Although the pandemic has helped speed up online retail’s growth rate, the e-commerce and tech giant ultimately faced new opposition as Chinese regulators launched an antitrust probe. The United States also examined the company’s possible funding of China’s military, impacting Alibaba and several of its rivals.
Hedge Funds and Institutions Are Selling
While Alibaba has garnered attention due to its growth and heat map ranking of 5, hedge funds are still selling. Looking at third-quarter activity by the top hedge funds, the aggregate 13F shares held decreased to about 249.5 million from 276.3 million, a decrease of approximately 9.7%. Of the hedge funds, 49 created new positions, 151 added to an existing one, 34 closed out their stakes, and 160 reduced their holdings. Overall, institutions decreased their aggregate holdings by about 6.8%, to approximately 1.1 billion from 1.2 billion.
Government and Media Announcements Catch Investors’ Attention
Investors may be cautious following recent government announcements and actions in China and the United States. In December 2020, Chinese regulators announced an investigation into the alleged monopolistic practices of Alibaba and its major competitors, potentially leading to a forced breakup of company components. Alibaba also faced a looming decision by the United States’ Department of Defense, which examined about a dozen companies for possible inclusion on the list of firms believed to fund China’s military. Fortunately, the United States did not add Alibaba to the list. Their stock jumped after the Wall Street Journal reported in January that U.S. investors may still invest in the company. Alibaba also saw a negative impact on its stock when its founder, Jack Ma, had not been seen in public for several months, coinciding with the start of China’s antitrust inquiries. The stock, fortunately, saw a rebound when Ma recently resurfaced.
Uncertain Outlook Despite Stock Gains
Over the past year, Alibaba’s overall growth is certainly encouraging for investors, especially seeing their rebound after the pandemic’s initial impact. However, the company has additional hurdles to conquer as it undergoes an antitrust probe by the Chinese government. If the company is not required to restructure, then there is great potential for future growth, especially given its value as a tech company and the world’s propensity for online shopping. The company is well-positioned to respond to increased demand for its products and services. Still, investors need to be loyal and flexible to ride out the regulatory storm.