Alibaba investors collect US$39.6 billion in stock’s best rally since January as antitrust penalty removes gloom

Martin Choi
·3-min read

Alibaba Group Holding surged by the most in nearly three months, adding HK$308 billion (US$39.6 billion) back to its market value, after a record penalty for antitrust practices helped remove a major weight on its stock performance since November.

The 18.2 billion yuan (US$2.8 billion) fine over the weekend, a culmination of a months-long probe, lifted a significant overhang on the company’s business and share price, analysts at Nomura, Citigroup and S&P Global Ratings said in reports published after the decision.

Alibaba, the owner of this newspaper, gained HK$14.20 or 6.5 per cent to HK$232.20 at the close of trading on Monday. The stock, which carries the fifth-largest weight of 5.2 per cent in the Hang Seng Index according to Bloomberg data, marked its best one-day advance since an 8.5 per cent rally on January 20.

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The latest development “could help lift the overhang that has weighed on share price performance the last few months,” Citigroup analysts led by Alicia Yap wrote in a note to clients, maintaining its buy call and price target of HK$328. Waiving its right to appeal suggests Alibaba wanted to “move forward to rebuilding business operation,” they said.

“We remain confident that Alibaba would navigate through the challenges and emerge stronger with more advanced technological innovation.”

Before today, the Hangzhou-based company in eastern Zhejiang province has lost HK$1.77 trillion (US$228 billion) of value since November 3 when Chinese authorities decided to clamp down on Alibaba and the tech sector by abruptly pulling the record-breaking dual stock offering of Ant Group in Shanghai and Hong Kong.

Alibaba “accepts the penalty with sincerity and will ensure its compliance with determination,” the company said in response to the penalty. “To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation.”

The record fine “removes a significant overhang” for Alibaba, although it would open the path to more competition, S&P Global Ratings in a report on Monday, which retained its credit rating at A+ with a stable outlook. “The competitive intensity will likely be higher in the future based on increased regulatory scrutiny of large technology companies such as Alibaba,” it added.

The amount of fine was likely weighed carefully by the regulator to serve as a deterrence to other big platforms but not be too big to hurt Alibaba’s operation severely, Nomura analysts Shi Jialong and Thomas Shen wrote in a report on Saturday.

“The conclusion of this antitrust investigation allows Alibaba to move on from this regulatory turmoil and to recast its focus on the business,” they said. “It also helps lift the regulatory overhang for Alibaba shares, as it scotched speculation on a possible breakup of Alibaba.”

The analysts reiterated their buy rating for shares of Alibaba listed in the US, with a target price of US$325. The current risk-reward looks attractive in view of the increasing volatility for Chinese internet stocks lately, they added.

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