Alibaba Group Holding Ltd (BABA)

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Alibaba Stock Is Back in Its Groove. Why Chinese Tech Could Keep Outperforming.
By: Barron's | July 5, 2022

Alibaba lost almost half of its market value last year while the S&P 500 gained more than 25%, disappointing investors in Chinese tech stocks who had enjoyed years of benchmark-beating returns.

Now, with the S&P 500 in a bear market, the tide looks to have turned.

Alibaba (ticker: BABA) stock is down 4% this year. That is a veritable victory considering the first six months of 2022: The S&P 500 declined almost 20% and the tech stock-heavy Nasdaq Composite slid nearly 29% in one of the worst first halves of the year in decades.

Shares in the Chinese e-commerce giant were up 1% in U.S. premarket trading on Tuesday, while the S&P 500 was poised to slip 0.5%. Alibaba has gained 17% over the past month alone, while the S&P 500 has lost 7%.

Why is Alibaba stock rising? Following almost two years of regulatory pressure in both Beijing and Washington and pain from a slowdown in China’s economy, analysts say the outlook is bright for Alibaba and its peers, such as JD.com (JD) and NetEase (NTES).

“We expect China Internet ADRs to outperform the broader market and their US peers in [the second half of 2022] and recommend investors take the opportunity to participate in the China reopening recovery,” wrote analyst Fawne Jiang of Benchmark in a note Tuesday.

That sentiment is echoed elsewhere.

“We think Chinese equities will continue to stand out in the second half of the year. We retain our most preferred rating on China within Asian equities,” Mark Haefele, the chief investment officer at UBS Global Wealth Management, wrote in a Tuesday note. “With valuations still at a discount relative to the U.S. market, we think there is room for Chinese equities to catch up in the months ahead.”

Analysts at Citi agree as well.

“We expect Alibaba’s fundamentals and share price are likely to correlate more closely with China’s recovery pace in 2H22,” wrote analyst Alicia Yap in a note Monday. “We recommend investors to revisit Alibaba as a core investment.” Citi rates Alibaba at Buy.

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