ALIBABA (BABA) $227.37 

Loss to date: 11.3%

Original entry point: Buy at $256.22, 23 December 2020

It’s been a very rocky start for Alibaba (BABA) in our top 2021 picks portfolio and the stock is currently being kicked from pillar to post by investors not sure what to make of recent events.

Speculation has intensified that tightening regulatory scrutiny on Alibaba might lead to large fines or even a forced break-up. And the mysterious apparent disappearance of its flamboyant founder Jack Ma has stoked worries that Alibaba remains a political plaything of China’s Government.

‘Jack Ma’s inability to be seen in public is just one of the reasons why we believe China equities are uninvestible’, Carson Block reportedly said last weekend. Block runs the Muddy Waters short selling activist fund.

While the 11% fall since we said to buy the stock for 2021 is bad enough, it is really a continuation of a stock slump since October from over $300.

Going on the missing list just days after Ma’s comments at a conference in November criticising the Chinese banking and its regulatory environment has led to all sorts of internet conspiracy theories, splitting opinions among fund managers and analysts.

Some believe Jack Ma is keeping a sensibly and self-inflicted low profile, while others think detention by Chinese authorities is possible.

Whatever the reason for Ma’s absence from the public eye many experts believe that the fundamentals of Alibaba ‘s business remain strong. ‘The Chinese economy has come out of the Covid slump far better than anyone else’, said Richard Windsor of equity analysis business Radio Free Mobile. ‘The shift of retail towards online transactions is continuing.’

While Ma retired from the Alibaba board in 2019 and has slashed his stake to an insignificant level (based on Refinitiv data), the entrepreneur retains influence at the company.

He is a lifetime member of the Alibaba Partnership, a group of a few dozen employees with tremendous power over the company’s board and leadership, as well as its bonus pool, according to reports, while he is also the decision-maker at Ant Financial, the digital payments business whose IPO was shelved at the 11th hour in November.

However, Radio Free Mobile’s Richard Windsor continues to see upside in Alibaba stock as it now trades at a significant discount to both its US peers and its main Chinese competitor Tencent. The latter trades on a 12 months PE of 30.6 versus Alibaba’s equivalent 19.2, according to Refinitiv data.

‘I don’t think that the China Communist Party has any real interest in disrupting Alibaba’s progress or of the development of digital financial services in China’, says the analyst. ‘I think that regulatory interference at Alibaba may result in a fine or two but nothing that is going to fundamentally damage the company.’

SHARES SAYS: Alibaba’s discounted stock remains worth owning long term. [SF]

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