China’s economic outlook increases market concerns as the country plunges into deflation.
In the previous week, shares of Alibaba Group Holdings Limited experienced a positive reaction following the announcement of the group’s quarterly results. However, this joy was short-lived, as after hitting the $100 per share level on NYSE-listed BABA, a new downtrend emerged, resulting in the stock dropping below $90. This represents a 12% contraction in less than 5 stock exchange sessions.
In this context, what could happen to China’s stock market and, in particular, to the shares of Alibaba (BABA)?
BABA: a look at the results of the quarter
The enthusiasm that pervaded Asian markets, specifically BABA shares, over the past week was justified by the financial results reported for the previous quarter: adjusted profit increased by 37%, largely exceeding consensus forecasts. Similarly, revenues increased by 4%. The opening of trading saw the share price jump by almost 4%, with the daily high surpassing 7%.
However, in the following days, there was an abnormal contraction of the quotations, with as many as four trading sessions in negative territory. The Chinese stock market has also followed this trend, heading inexorably towards lows, with the Heng Seng index close to the lows reached in February 2023. This atmosphere of pessimism has also spread to other large Chinese companies, negatively affecting most share prices.
What drives China’s stock price so low?
The country’s economic outlook appears to be of significant concern, as China officially entered a deflation regime, potentially hampering its economic growth. This is not a new phenomenon: a similar scenario occurred, for example, only two years ago.
Currently, producer prices in China are declining by 0.3% annually. While China’s statistics agency says it’s a temporary contraction, the market doesn’t appear to have interpreted the recent declines as a buying opportunity. In fact, the market’s concerns are multifaceted in nature and not limited to economic issues alone.
An example is the growing geopolitical tension between China and the United States, with disputes involving both trade and technology, as well as the complex situation arising from the Russian invasion of Ukraine, which still seems far from a definitive solution.
Original article published on Money.it Italy 2023-08-17 16:00:00. Original title: Allarme deflazione in Cina: il caso Alibaba
