Alibaba: Red Dragon Turns Green, Time To Buy

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Alibaba: Red Dragon Turns Green, Time To Buy

Seekingalpha2023-09-22

Leading indicators suggest a potential recovery in the Chinese economy.Chinese equities are cheap and supported by the PBoC, making it a good time to buy.Alibaba Group Holding Limited is a safe bet on...

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Leading indicators and GDP forecasts signal the worst could be behind China.Chinese equities are cheap here, and given the coming support from the PBoC, this could be a good place to buy.Alibaba Group Holding Limited (NYSE:BABA) is perhaps the best way to go long China, given its size and robust revenues. In my last article, I talked about how Alibaba had done well to turn things around following its latest earnings report.The price today is not far off where it was then, but today, Alibaba also has the backing of the PBoC, and an economy that could have left its worst days behind it.Due to this, I am moving BABA to a strong buy.China could be turning things aroundChinese woes began in early August as property developer Country Garden failed to pay investors. The company has been forced to restructure, and creditors recently approved a $9 billion debt restructuring plan. Other names in the industry have also faced trouble, but with the help of the PBoC, the situation seems to have stabilized.Following these events, the PBoC has shifted into a much more accommodative policy stance. The Central Bank cut its rates last month. It recently rolled over its medium-term policy loans to provide further liquidity.On top of this, the Chinese government has also signaled it will support markets in other ways, for example, by cutting stock trading fees.While this policy support might not be enough to justify investing in Chinese stocks, we have seen some encouraging economic data in recent weeks.China industrial production and GDP (Pictet Asset Management)Industrial Production has recovered back above its long-term trend line. Also, the most recent GDP forecasts have been revised upwards, with GDP forecast to increase by 1.2%.The CEIC Leading indicators are signaling a reversal too.CEIC leading indicator China (CEIC)All these measures are, in my opinion, a good indication of where Chinese equities could move in the next few months.The dust has settled in China, and though it's clear that the economy will struggle long-term, its equity market seems undervalued.BABA: A \"safe\" bet on ChinaAlibaba Group Holdings is one of the largest Chinese companies by market cap. BABA has done well in recent months despite economic headwinds, and this was reflected in its last earnings report.The company showed discipline in its operations, increasing its profitability while also expanding its operations abroad. International commerce, for example, grew to a 29% increase versus last year's first quarter.In my opinion, Alibaba is a relatively safe way of betting on China since it is perhaps the most well-known company in the country. Furthermore, the company also has exposure to many other Asian geographies, making its revenue even more robust.Looking at the valuation, it is hard not to be enticed.Alibaba Valuation (SA)Even by historical standards, accounting for the fact that Chinese equities trade at lower valuation multiples, BABA looks attractive here. The PEG, in particular, which is 0.16, is very compelling.Technical AnalysisBABA stock has reached a key technical level, which is why I think this is a compelling risk/reward entry:Alibaba TA (Author's work)The structure of the May lows isn't impulsive, but this could be an initial wave (i) in a diagonal. After reaching over $100, we have pulled back, and are now just above the 78.6% retracement. If we were to break below this level, I'd expect BABA to make new lows, meaning we'd probably go below $77. However, this could be a good spot for a reversal.The RSI is nearing oversold levels on the daily, and we have some volume support coming in, as shown by the Visible Range Volume Profile.RisksAlthough BABA has a compelling fundamental and technical outlook, I believe there's significant risk when investing in China. My main concern right now would be that the PBoC fails to deploy enough liquidity to support markets. The issue here is that the bank is also trying to support the value of the Yuan, which could limit its monetary expansions.TakeawayIn conclusion, I think there's some room for Alibaba Group Holding Limited to appreciate here. This would definitely catch many by surprise, but there is strong evidence that China's worst days could be behind it. Understandably, a lot of investors will want to stay away from China, but for those looking to gain some exposure, even if it's just for a trade, Alibaba is the best way to do so.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":13,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}