Profit takers push down Alibaba stock price

The stock price of Chinese e-commerce giant Alibaba has begun to recover after profit takers pushed down the price soon after its blockbuster initial public offering (IPO) on September 19.

The decline following its first-day peak was also blamed on data that suggested growth of the Chinese economy was slowing while the housing market faced troubles.

However, many bullish investors maintain the Alibaba stock is desirable, with some predicting the stock price would exceed the $93.89 it reached after the first day of trading, which was itself a huge gain on the list price of $68. The stock closed on Friday at $90.46.

William Lam, a fund manager in Invesco Perpetual’s Asian equities team, said he was pleased to have participated in the IPO even though he is normally sceptical of initial offerings.

“We believe that the company’s management are more interested in creating a positive association with the Alibaba brand than they are in establishing a high price for the IPO,” he said, last week, adding that “management was not encouraging investors to hold excessively high expectations for future growth. For example, they said that margins could well fall in the future.”

One concern about Chinese internet companies in general is the variable interest equity structure they use to circumvent restrictions on foreign ownership in sectors deemed sensitive by the Chinese government, like internet, media and education.

The US-China Economic and Security Review Commission has warned that the structure is a “complex and highly risky mechanism” and says Chinese courts cannot be relied upon to hold up the structures in court, should a shareholder seek to take over the entity and ignore the legal arrangement on which the system is based.

However, for Lam and other fund managers, these risks were not overly worrying.

“We are well-acquainted with the other Chinese internet stocks listed in the US, most notably Baidu, a current large holding in the portfolios we, within the Asian Equities Team, manage,” he said.

©2014 funds europe

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