Alibaba
stock was one of many casualties in the stock market on Tuesday after trade data continued to paint a grim picture of the outlook for China’s economy. It could be a wider risk than investors currently think.
Shares in
Alibaba
(ticker: BABA) lost 1.6% in U.S. premarket trading on Tuesday after trade data out of China surprised markets on the downside. Exports fell 14.5% annually in July, a greater drop than in June and more than the 12.5% slide expected by economists surveyed by FactSet. Imports slid 12.4% year-over-year, bucking expectations of a 5.4% decline, which would have been an improvement from June’s 6.8% drop.
“China’s latest trade data revealed a worsening contraction in exports and imports, which is a warning sign that both international and domestic demand is losing power,” said Marios Hadjikyriacos, an analyst at broker XM. “The slowdown in the world’s second-largest economy seems to be deepening.”
Alibaba, an e-commerce giant, is highly sensitive to trends in Chinese consumption. July’s decline in imports is a bad sign for the group’s business, and could suggest a weakening outlook for the company, due to report results for the three months to the end of June on Thursday. Falling imports is also bad news for global producers who rely on consumers in China.
But the shocking fall in exports bodes ill far beyond Alibaba, or even Hong Kong’s
Hang Seng Index,
down 1.8% on Tuesday. China is a major producer of goods for the world, and gloom in exports spells trouble outside the country. It suggests global demand is weak for Chinese goods, building on fears of a wider economic slump.
The data out of China looks to be weighing on investor sentiment on Tuesday, with the
S&P 500
poised to open lower as American investors seem to be catching on to the implications. And while bad news out of China has, in the past, meant good news for stocks—because grim data raises the prospect of stimulus—that narrative has started to unravel amid an absence of substantial government action.
“Futures have turned lower again today, likely spooked by China’s worsening slowdown,” said Hadjikyriacos. “Chinese authorities have unveiled a plethora of stimulus measures lately to counter the economic slowdown, but investors have been underwhelmed by the scope and size of these policies, as they seem to lack the firepower necessary to truly kickstart growth.”
These worries are unlikely to dissipate soon. While U.S. consumer-price index (CPI) data will be in focus on Thursday, Chinese CPI data is due Wednesday and is likely to show decelerating price-growth, another troubling sign. Alibaba’s earnings will then drop on Thursday, advancing further what could be an increasingly gloomy narrative.
Write to Jack Denton at [email protected]
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