Analysts looking at the biggest selloff in three months for China’s Alibaba Group Holding Ltd. are beginning to worry it may be a sign that investors feel China’s consumer recovery following its much-vaunted reopening may not be as resounding a success as many have hoped.
Slumping 9.1% this week, the tech giant saw $28 billion in market capitalization evaporate. The losses trimmed the company’s gains for the month to roughly 25%, though that is still over twice the rebound seen in the benchmark Hang Seng Index in Hong Kong.
Some analysts have noted that investors appear to have priced in a faster recovery for the company’s earnings than it will likely be able to produce. That excess of optimism may hamper future gains, which until now have been largely driven by bullish reports from brokers including Citigroup Inc, as well as the recent report from Goldman Sachs Group which claimed investors could expect greater earnings upside going forward for China’s internet sector, as the economy reopened and the government’s regulatory clampdown was eased.
Banny Lam, head of research at Ceb International Inv Corp Ltd. said, “Some investors are getting cautious after such a sharp rally, and they are waiting for data on a fundamental recovery, including earnings and business guidance. The stock will remain volatile in the near term.”
During January, Hangzhou-headquartered Alibaba gained more than nearly all other companies in the Hang Seng Index, as it extended its rally from a low in October, to a 75% gain. Nor was it alone in rallying beyond a reasonable measure as Tencent Holdings Ltd. and Netease Inc. have begun to show signs they may also be overbought.
Alibaba revised its 12-month earnings forecast down roughly 4% since mid-December, according to Bloomberg data.
In Hong Kong this month, there has been a rebound in the company’s put-to-call ratio, indicating investors are purchasing additional protection from any more stock declines.
For about three weeks, Alibaba’s shares have been technically overbought, prior to Monday’s fall, according to data from Bloomberg based on 14-day RSI.
