Macro

Alibaba Plummets 75%, Gold Hits $2,300 Amid China's Shift

Alibaba's stock drops over 30% in 12 months while gold surges to $2,300 per ounce, highlighting shifting investor confidence.

By Barry Stearns

4/4, 08:08 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Alibaba Group Holding Limited
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Key Takeaway

  • Alibaba's stock has plummeted over 75% since late 2020, while gold prices have surged to record highs above $2,300 per troy ounce.
  • The decline in Chinese tech stocks like Alibaba is linked to a shift in investor preference towards gold amid China's economic slowdown.
  • Central bank purchases and increased retail investment in gold, especially from China, are significant drivers behind the metal's price rally.

Alibaba's Downturn

Alibaba's stock has experienced a significant decline, dropping more than 6% this year and nearly 30% over the past 12 months. This downturn is part of a broader slump that has seen the company's market value decrease by over 75% since its peak in late 2020. The debate among investors is whether Alibaba and similar Chinese tech stocks are undervalued opportunities or value traps to be avoided. Despite expectations for a rebound in 2023, an economic slowdown in China has posed new challenges, further impacting Alibaba's stock performance.

Gold's Rally Amid Alibaba's Fall

As Alibaba's shares have faltered, gold prices have surged to record highs, with continuous-contract futures for the yellow metal trading above $2,300 per troy ounce, marking a 12% increase this year. This rally is supported by multiple factors, including gold's role as an inflation hedge, expectations of falling global interest rates, and a weakening U.S. dollar. Notably, central banks, particularly the People’s Bank of China, have been increasing their gold holdings, contributing to the metal's price surge. This trend is partly driven by demand from China's retail market, reflecting a shift in investment preferences amid the country's stock market and real estate sector troubles.

Investor Sentiment and Market Dynamics

The shift towards gold investment in China highlights a significant barrier for Alibaba and other Chinese tech stocks: the need to restore domestic investor confidence. Despite government stimulus efforts, Chinese investors are increasingly turning to gold as a safer investment option. This trend underscores the challenges facing Alibaba and similar companies in attracting investment and staging a recovery. Michael Burry of Scion Asset Management has notably increased his stakes in Alibaba and JD.com, signaling a belief in their potential despite the broader market skepticism.

Street Views

  • Bank of America Analysts (Bullish on gold):

    "Central banks themselves keep adding gold to portfolios. This has perhaps been most visible in China, where the People’s Bank of China has been increasing its exposure. That buying has also attracted purchases from China’s retail market participants."

  • Thomas Gatley and Wei He, Gavekal Dragonomics (Neutral on Alibaba and Chinese stocks):

    "The biggest driver appears to be buying from retail investors... As housing and equities have persistently disappointed, a larger portion of China’s household savings is flowing into gold as an alternative."