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What’s been holding back the Alibaba share price?

The Alibaba share price [BABA] fell 13.3% in 2021 to 8 July. The year got off to a fantastic start, with the Alibaba share price gaining 21.8% in the opening weeks to close 17 February at $270.83. However, the Alibaba share price then entered a steep downturn that caused it to fall 16.3% in three weeks, to close 8 March at $226.69.

Over the next month, the Alibaba share price continued to fall slowly before gaining 9.3% on 12 April. From here, however, the Alibaba share price entered freefall and bottomed at $206.08 on 13 May. Rallies since have been infrequent or short-lived, and at the 8 July close,  the Alibaba share price stood at $199.85, its lowest point since June 2020.


Alibaba's YTD share price fall


Alibaba ups its stake

Alibaba leads a consortium, including the government of the Chinese province of Jiangsu, that is close to purchasing a stake in retailer Suning [002024.SZ].

Suning has a reported $7bn debt due within a year, including a $600m bond note maturing in September. Moreover, CNY1.7bn of local securities require refinancing or repaying through August, with the company having already put off more than CNY5bnin bond maturity payments since February.

The consortium’s investment in the Suning conglomerate is expected to ease concerns over the retailer’s liquidity status. On the announcement of the news, a 5.5% yuan-denominated Suning bond maturing in August reached its highest level in 2021.


Suning's YTD share price fall


Alibaba already held a 20% stake in Suning, which it purchased for $4.6bn in 2015, but has watched it lose two-thirds of its value as Suning’s debts have mounted. Suning’s stock has performed far worse than the Alibaba share price so far this year, falling 19.3% so far in 2021 to 9 July.

Alibaba’s founder Jack Ma has long envisaged what he calls “New Retail,” a futuristic blend of offline and online shopping experiences. The group’s Freshippo supermarket chain offers a glimpse of what this future could look like: apps offer customers the option to have food cooked in-store by robots, or suggest wine pairings for particular products.

“Our vision for the future of retail was never digital versus physical,” says Freshippo chief of staff Guo Xulin, “but to build the future infrastructure of commerce, one that seamlessly integrates online and offline.”

Alibaba already controls 80% of the $3.5trn Chinese e-commerce market, but is determined to expand its share of grocery sales and master brick-and-mortar retail. This is why its increased involvement with Suning could suit both parties.


Valuation of the Chinese e-commerce market


Suning has a network of 2,600 stores, last-mile delivery stations and distribution centres, which would complement Alibaba’s expansionist approach to in-store retail. Despite this potential synergy, the Alibaba share price fell 1.2% on 30 June as the news broke


Short Shopping

Suning’s liquidity crisis is part thanks to senior management’s profligacy, and has hampered its ability to recover from losses incurred during the coronavirus pandemic. Earnings fell from CNY9.8bn net profit in 2019 to net losses of CNY4.3bn in 2020.

The  Global X E-commerce ETF [EBIZ] has gained 31.2% in the past 12 months and 3.6% so far this year to 8 July, meaning growth has slowed considerably this year. Alibaba is the fund’s fourteenth-largest holding, weighted at 3.54% as of 8 July.

The fund has underperformed the market so far in 2021, as the S&P 500 gaining 15% in the year to 8 July. Part of the reason is the resurgence of in-person shopping as pandemic restrictions ease.

The ProShares Long Online / Short Stores ETF [CLIX], which holds a 100% long position in primarily online retailers and a 50% short position on physical store operators, was down 9.1% in the year to the 8 July close. The ProShares Decline of the Retail Store ETF [EMTY], an inverse ETF that bets against in-store shopping, has crashed out with losses of 28.6% at close on 8 July. The Solactive-ProShares Bricks and Mortar Retail Store Index, which EMTY shorts, is up 35.4% in the year to date (through 8 July).

While Suning isn’t benefiting from this recovery Alibaba’s shareholders will hope that increasing its stake in the company will allow it to tap into the resurgence in in-person shopping, and to shape its future. Whether this manifests as an increase in the Alibaba share price remains to be seen.

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