What happened
Major US-traded Chinese stocks continued to struggle today amid major sector-wide news and the start of earnings season.
Shares of Chinese e-commerce majors Alibaba ( BABA -9.29%) and JD.com ( JD -4.13%) were down roughly 8.5% and 5.5%, respectively, as of 9:52 a.m. ET. Meanwhile, shares of online education company TAL Education Group (TAL -8.07%) fell nearly 9%.
So what?
Earlier this week, Alibaba announced that it plans to do a dual IPO and list shares in Hong Kong in addition to its current listing on the New York Stock Exchange. The company said it will list in Hong Kong before the end of the year. Management cited the fact that Hong Kong is at the center of the company’s “globalization strategy” and that it is “fully confident in China’s economy and future.”
Also, Chinese stocks are dealing with news this week that billionaire Jack Ma plans to step down from tech giant Ant Group, which is an affiliate of Alibaba. Ant Group has been trying to go public since 2020.
The move appears to be part of a broader effort to further separate Ant from Alibaba, which Ma founded. Several Ant executives also recently cut ties with Alibaba. All of this could speed up Ant’s eventual IPO, but investors may not see this as a positive for Alibaba.
Alibaba will also report earnings on Aug. 4, and analysts expect the company to report a slowdown in revenue, which would be the company’s first quarterly revenue decline ever.
The Financial Times reported on Wednesday that Alibaba’s US subsidiary no longer expects to meet its target of adding 1 million small and medium-sized businesses. The move is part of a broader push in the U.S. e-commerce market to compete with the likes of Amazon.
In other news, TAL Education Group just reported earnings for its first quarter of fiscal 2023. TAL generated a loss of $28.3 million on total revenue of $224 million. Revenue plunged nearly 84% year over year.
The market had expected a significant slowdown in earnings at TAL due to the Chinese government’s crackdown on private tutoring, but it appears that investors are still disappointed.
Now what
This week was a forgettable one for Chinese stocks, despite what was a largely positive month for US stocks. Alibaba appears to be dealing with some legitimate business difficulties, although it’s a little unclear how Ma’s disconnect with the company will affect that going forward.
In recent months, the Chinese government has begun to ease its regulatory measures that hit stocks hard last year. The country is also dealing with a resurgence of COVID-19 cases, which has led to many lockdowns in major Chinese cities.
I’m really more concerned about these issues right now. If the regulatory pressure can continue to ease and the lockdowns don’t affect the Chinese economy too much, then I think the sector has upside, but it’s still a big if. If you are considering buying any of these stocks, prepare to hold for the long term and expect turbulence in the short term.
John Mackie, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Amazon and JD.com. The Motley Fool recommends TAL Education Group. The Motley Fool has a disclosure policy.
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