Why Alibaba Won’t Be Delisted! (the truth about BABA's delisting risk)

Why Alibaba Won’t Be Delisted! (truth about the delisting BABA drama)

There is no doubt about the fact that if one only looks at the fundamentals of Alibaba, a business that averaged almost 50% in revenue growth over the last 5 years, Alibaba's stock is valued cheaply. The main reason for the massive discount on Alibaba's stock is probably not the firm’s ability to continue growing in the future, but rather the uncertain future of Alibaba's stock.

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Alibaba investors (and investors in Chinese stocks in general) are first and foremost becoming increasingly worried that Alibaba (and other Chinese stocks) may be forced to delist from the Nasdaq stock exchange (or the New York Stock Exchange respectively) and as a result of this very pessimistic sentiment, Alibaba’s stock keeps dropping and dropping and is now trading around 60% below its all-time high and is almost reaching its IPO price of 7 years ago.

But how high is the delisting risk for Alibaba and other Chinese stocks really? Well, this is a question that we will explore in this video and I will share a more optimistic view with respect to Alibaba's stock and outline the first of three reasons why I think the fear of delisting BABA's stock is overstated. I’ll cover the other two in a follow-up video.

Gary Gensler, the chairman of the SEC, has recently warned that many investors may not fully understand the nature of their investments in Chinese companies. Put in a nutshell, investors who buy shares of Alibaba, JD.com, or Pinduoduo actually do not own a stake in the actual operating entity but rather own a stake in an offshore shell company that gives investors a claim on the profits generated by the Chinese operating entity. That’s because Chinese tech firms use so-called variable interest entity structures, in short VIEs, to list abroad and bypass Beijing’s rules on foreign investments.

Not only are Alibaba investors worried about the nature of VIE structures, but Alibaba's growth has also slowed down recently and if the regulatory crackdown on big tech firms continues, Alibaba’s business may be further affected. Moreover, Alibaba is donating billions of dollars to “common prosperity”. And on top of all of this, investors also fear that the Chinese e-commerce giant may be forced to lose its primary listing in New York because just recently, the Chinese government forced the Chinese ride-hailing company DiDi Global to delist from the New York Stock Exchange and pursue a listing in Hong Kong as the Chinese Communist Party is concerned about data security.


OTHER LINKS:
○ CSRC December statement: https://cnevpost.com/2021/12/05/chinese-securities-regulator-says-it-recently-had-constructive-communication-with-us-sec-pcaob/
○ CSRC September statement: https://www.socialgrep.com/search?query=china%20securities%20regulatory%20commission

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