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China’s Alibaba Group May See a Turnaround
Signs are building that Alibaba Group Holding Ltd (BABA), China’s largest e-commerce company, may finally see a turnaround after plunging to a 7-year low last month. Alibaba Group Holding has tumbled nearly -82% after posting a record high in October 2020.
Alibaba Group is expected to return to sales growth in the September quarter when it reports earnings on Thursday, following its first-ever decline in growth in the prior quarter. Options data shows the put-to-call ratio for Alibaba’s stock nearing a record low, showing investors are becoming more optimistic about the stock as they pull back from buying bearish put contracts that would benefit from further declines in the stock price.
Even after dip buyers of Alibaba Group in the past year have been burned by buying Chinese technology stocks, belief is growing that the worst for the sector may be over. The Chinese government last Friday announced plans to ease some pandemic travel restrictions, and the government also announced a sweeping package to rescue the country’s beleaguered property market.
Alibaba Group Holding on Thursday is expected to report a +4.3% revenue increase for the September quarter, along with the first margin gain since 2019. Investors will also watch for updates on the company’s efforts to lower expenses and guidance on future stock buybacks. Despite the recent optimism, Alibaba faces broader challenges regarding future growth prospects. Concerns about the impact of U.S. microchip export legislation on the company’s cloud business weigh on sentiment, while China’s exit from Covid Zero is expected to be a long process.
Analysts are becoming more optimistic about the Chinese technology sector overall. According to options data, bearish bets are also easing for Alibaba peers JD.com (JD) and Tencent Holdings Ltd. (TCTZF), whose earnings results are expected to meet or even beat expectations. BNP Asset Management for Asian and Greater China equities said, “valuations of tech and innovation stocks in China look very attractive compared to historical levels and global peers. The risk-reward is more on the reward side at current valuation levels.”
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