Alibaba Stock Drops Over Regulaton Threats

China regulators issued draft rules Tuesday aimed at preventing monopolistic practices by internet companies, a move that caused Alibaba stock and that of other internet giants based in the nation to plunge on the news.


The draft rules will increase scrutiny on e-commerce marketplaces and payment services belonging to Alibaba (BABA) and Tencent Holdings (TCEHY) in particular. Policymakers are signaling a heightened concern over the growing power and risks of digital platforms and their market practices.

Alibaba stock tumbled 8.3%, closing at 266.54 on the stock market today. Tencent stock fell 6.1% to 73.80. (JD) lost 5.6%, closing at 80.08. And Huya (HUYA) dropped 5.3% to 19.91.

China’s State Administration for Market Regulation, which issued the draft, said it wanted to prevent platforms from dominating the market or from adopting methods aimed at blocking fair competition, according to a report from Reuters.

The draft rules follow the postponement of the massive Ant Group initial public offering that was scheduled for last week.

The Ant Group IPO was set to be the largest initial public offering ever. Alibaba was to have a roughly 33% stake in Ant. The decision to suspend the IPO came after Shanghai exchange officials said they would halt the listing due to the company’s inability to fulfill conditions amid changes in the regulatory environment.

Rise And Fall Of Alibaba Stock

Anticipation of the Ant Group IPO initially fueled a rise in Alibaba stock, which then pulled back after the postponement. Shares also fell below the 50-day moving average. These are factors to take into account when considering whether Alibaba stock is a buy or not.

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The rules would also look at whether digital transactions unfairly treat customers in different ways. This would include demanding vendors to transact only on one platform exclusively, or providing differentiated prices to customers based on their shopping profiles, which could potentially be outlawed, according to the draft guidelines.

It would be the first time market regulators have attempted to define what constitutes anti-competitive practices among internet companies under the law.

Chinese market regulators will seek reviews and feedback from the public for the draft rules until Nov. 30.

Until recently, China has taken a relatively hands-off approach toward companies that dominate China’s burgeoning e-commerce and digital finance industries. Now, however, authorities are concerned the companies have become too powerful.

To find the other best stocks to buy or watch, check out IBD Stock Lists and other IBD research.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.


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