Alibaba stock was muted despite a move from China’s central bank to boost consumption.
DreamstimeThe stock market doesn’t believe that the latest stimulus from China will be enough to save the world’s second-largest economy. Just look at Alibaba.
Shares in Alibaba (ticker: BABA) fell 0.7% in U.S. premarket trading on Tuesday, poised to extend declines after the stock dropped 2.4% on Monday. It’s not the move shareholders want to see after China’s central bank cut a spate of lending rates to shore up the country’s economy and boost consumption. At the start of the year, investors were expecting a strong recovery in 2023 after pandemic lockdowns were lifted.
The People’s Bank of China on Tuesday lowered its seven-day reverse repo rate, a main rate for short-term bank liquidity, to 1.8% from 1.9%. The central bank also cut its one-year medium-term lending facility rate to 2.5% from 2.65%—the biggest downshift of that benchmark since April 2020 and the early days of the Covid-19 pandemic.
“The most urgent goal now is to stimulate household consumption, and it is necessary to use all reasonable, legally compliant and economic channels to put money in residents’ pockets,” Cai Fang, a member of the PBOC’s monetary policy committee, wrote in statement published on local social media late Monday, Bloomberg reported.
One of China’s largest companies and an e-commerce giant, Alibaba is a good bellwether for domestic economic trends and is sensitive to the Chinese consumer. The Dow Jones Industrial Average and S&P 500 are both set to fall on Tuesday amid a bevy of pressures, but a slip in Alibaba stock signals that investors are specifically gloomy about the efficacy of what increasingly looks like desperate Chinese stimulus.
China’s economy fell into a rut in 2022 as the government’s severe zero-Covid lockdown policies stifled a recovery from the pandemic felt elsewhere. Hopes were high for 2023 to deliver a rebound, but it has yet to materialize.
“Monetary stimulus is of limited use in the current environment and won’t be enough, on its own at least, to put a floor beneath growth,” Julian Evans-Pritchard, the head of China economics at research group Capital Economics, wrote in a Tuesday note.
Multiple metrics now suggest China’s economic slowdown is getting worse—a trend that is weighing on global markets—including underwhelming retail sales and industrial production data released on Tuesday. A crisis in the sprawling and distressed property sector, and the possibility of spillover, add to the gloom.
“But the PBOC tends to use changes in policy rates as a signalling tool, with the heavy lifting being done by other tools such as adjustments to reserve requirements and bank loan quotas,” Evans-Pritchard added. “Today’s cut suggests that these tools will be deployed too, consistent with the PBOC’s promise of further monetary easing.”
But so far the move looks like another disappointment. While, as Evans-Pritchard said, it telegraphs even more action, it puts the emphasis on a maybe-next-time approach for investors currently looking for the upside in the selloff across Chinese names like Alibaba.
Write to Jack Denton at jack.denton@barrons.com
