Alibaba Shares Tumble Again After Chinese Regulators Tighten Screws on Ant Group
December 28 2020 - 7:15AM
Dow Jones News
By Chong Koh Ping and Xie Yu
No longer China's most valuable company, Alibaba Group Holding
Ltd. has erased almost all its stock-market gains this year, just
days after Chinese regulators signaled a major change in their
posture toward the e-commerce behemoth and its finance affiliate,
Ant Group Co.
Alibaba's Hong Kong-listed shares tumbled another 8% on Monday,
after China's central bank released a harshly worded statement
Sunday criticizing Ant's business practices and instructing the
financial-technology giant to shift its focus back to its
mainstay--and less lucrative--digital-payments business.
The declines extended a stock selloff on Christmas Eve, taking
Alibaba's market capitalization down to $586 billion. Just two
months earlier, it had hit a record high of nearly $859 billion on
expectations that Alibaba would profit handsomely from Ant's public
listing.
Alibaba's swift comedown has led investors to reassess the
regulatory risks faced by Chinese internet companies. Last
Thursday, the country's top commerce regulator said it is
investigating whether Alibaba abused its dominant market position
in online retailing through activities such as making merchants
sell products exclusively on its platforms.
The hard part is figuring out "how much of the recent regulatory
moves against Ant and Alibaba is politically based, how far it will
go, and when it will be over," said Alex Au, managing director at
Alphalex Capital Management, a Hong Kong-based hedge fund. He said
he is considering buying Alibaba shares if they fall further.
At the center of the unfolding regulatory debacle is billionaire
Jack Ma, Alibaba's co-founder and former boss, and the controlling
shareholder of Ant. In early November, Beijing scuttled Ant's
blockbuster initial public offerings that had been on track to
raise at least $34.4 billion, after Mr. Ma infuriated China's
leadership by criticizing financial regulations and quoting a
phrase from Chinese President Xi Jinping in a controversial speech,
the Journal previously reported.
Some analysts said the intensifying pressure on Alibaba and Ant
is tied to Mr. Ma falling out of favor with Chinese officials, but
there could be spillover effects on other large Chinese internet
companies.
On Monday, Hong Kong's Hang Seng Tech index tumbled 4.3%, with
social-media and videogaming giant Tencent Holdings Ltd. falling
6.7% and Meituan, the operator of a popular multipurpose app for
Chinese consumers, down 6.9%. Both Tencent and Meituan shares are
still up substantially for the year.
Alibaba owns a third of Ant, which had been valued at more than
$300 billion just before its IPO was suspended. Ant's valuation
will most certainly be revised downward by investors, as its
fast-growing businesses such as digital lending and sales of
investment products could be forced by regulators to shrink.
Chinese regulators summoned Ant representatives to a meeting
over the weekend and instructed the company to refocus its
attention to its original payments business and comply with rules
and regulations for its other business lines spanning personal
lending, wealth management and insurance.
Richard Turrin, a financial-technology industry consultant, said
the recent Alibaba selloff may have more to do with overreaction
based on fear, rather than a rational revaluation of Ant and
Alibaba.
"Whenever China introduces such harsh regulations against big
private conglomerates, people think of iron fist policies that
might crush the latter. But Ant and Alibaba shouldn't be that kind
of case," he said.
It isn't in China's interest to break up, or destroy such a
profitable enterprise that is already helping small business or
poverty alleviation, he added.
Chen Shujin, a banking analyst at securities firm Jefferies,
said in digital payments, Ant's Alipay app is operating in what is
already a saturated domestic market, so its growth potential could
be limited.
On the antitrust probe, Nomura research analysts said in a note
Monday that China might want to use Alibaba's case as a precedent
to send a warning shot to other dominant technology companies that
have used their market power in anticompetitive ways
"Any action on Alibaba will not only affect the company but also
have profound implications for the whole internet industry," said
the Nomura analysts.
The net result could be a hit to the bottom lines of China's
internet giants as they move to comply with regulators' wishes,
said Iris Pang, an economist with ING Bank in Hong Kong.
"Ultimately, they will earn less," she said.
Write to Chong Koh Ping at chong.kohping@wsj.com and Xie Yu at
Yu.Xie@wsj.com
(END) Dow Jones Newswires
December 28, 2020 07:00 ET (12:00 GMT)
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