Alibaba Group Holding Ltd (BABA)

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Why Alibaba Was Rising Today on a Terrible Day for the Markets
By: Motley Fool | April 22, 2022

• The Chinese government is looking for ways to boost its stock market.

What happened

Shares of Alibaba ( BABA 0.81% ) were up as much as 5.5% today, before settling into a 0.8% gain as of 1:56 p.m. ET. Still, that figure looked terrific next to the general U.S. markets, which were down 2% as of this writing.

However, for those hoping it was something fundamental about Alibaba's business driving the stock, you may be disappointed.

So what

Yesterday, China's Securities Regulatory Commission held a meeting with members of large banks, insurance companies, and the country's social security fund, and encouraged these large in-country investors to buy stocks. This comes as the Chinese indexes are down some $2.7 trillion in value, and are actually all the way back to levels not seen since June of 2020. It looks as though many investors heeded those orders today.

China's government hasn't done itself any favors, of course. Regulators have launched an all-out assault on the country's tech giants ever since late 2020, starting with Alibaba. And due to the country's insistence on less effective, home-developed vaccines, China is undergoing a major COVID-19 wave. Due to its strict zero-COVID policies, the country is implementing strict lockdowns, which could hurt output and growth.

Unless the COVID-19 situation improves and the regulatory assault on the nation's technology giants officially ends, it's going to be hard to put much stock into today's positive movement in Alibaba and other Chinese stocks.

Now what

Although this wasn't a fundamentals-driven rally today, Alibaba's stock sure does look cheap. It currently sports a forward P/E ratio based on next year's earnings estimates of 10.5. That is very, very cheap, especially for a large-cap tech giant in the growing fields of e-commerce and cloud computing.

On the other hand, there are still many risks involved in Alibaba. The first is on the geopolitical front. Should China pursue a closer relationship with Russia, it could lead to more isolation of the country, which would not be good for the Chinese economy or Alibaba's business.

The second concern is on the competitive front. I've had concerns over the strength of Alibaba's moat against other rivals JD.com and Pinduoduo, especially since the government began implementing anti-monopoly regulations over the past year. Alibaba showed very tepid growth in its core business last quarter, even while JD.com maintained growth over 20%.

So, while Alibaba may be cheap enough to buy here, there are lots of lower-risk stocks that are also being sold off on this market downturn. In this difficult market, it may be better to look at high-quality names with strengthening moats that are selling off, rather than those with increasing competitive threats.

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