The decline of Alibaba weighs down on Hong Kong as the momentum of market rallies diminishes
Asian stock markets faced setbacks on Friday, with Hong Kong taking the lead in losses. Alibaba bore the brunt of the downturn following its announcement to cancel the scheduled spinoff of its cloud computing division.
The market downturn concluded an eventful week on global trading floors, with Wall Street showing minimal movement despite a better-than-expected surge in US jobless claims, further boosting confidence that the central bank would refrain from raising interest rates.
Alibaba, a significant player in the market, witnessed a sharp decline of over 10% following its unexpected decision to halt the spinoff of its cloud computing division due to the ongoing US-China chip conflict.
In a significant restructuring move announced in March, Alibaba had outlined plans to divide the extensive conglomerate into six distinct entities, each capable of independently seeking funding through public listings. However, on Thursday, the company abandoned the formation of its Cloud Intelligence arm, citing "the recent expansion of US restrictions on the export of advanced computing chips."
Citing national security concerns, Washington has taken steps to prevent the export of potent chips, including those vital to artificial intelligence development from California-based Nvidia, to China.
The abandonment of the cloud spinoff was considered the centerpiece of Alibaba's restructuring, casting doubt on the market's valuation of the group at $200 billion, as per analysts' assessments.
In its earnings release on Thursday, the company acknowledged that the spinoff might not achieve the intended enhancement of shareholder value. Consequently, Alibaba opted against proceeding with a full spinoff and instead expressed its commitment to developing a sustainable growth model for the Cloud Intelligence Group given the evolving circumstances.
The announcement caught traders off guard, leading to a more than nine percent drop in its US-listed shares, marking it as one of the notable casualties in the ongoing tensions between China and the US.
This development adds to the challenges faced by the company, which has been closely monitored by Beijing and has encountered a series of restrictions within the domestic tech sector in recent years.
Kevin Net of Tocqueville Finance expressed surprise, stating, “I was quite taken aback. My initial thoughts are that the entire corporate restructuring could be at risk.” Willer Chen from Forsyth Barr Asia succinctly remarked, “The market is scratching its head.”
Across Asia, other markets also faced difficulties, influenced by a subdued performance on Wall Street. This persisted despite reports of increased jobless claims, indicating a softening in the labor market.
The data comes in the wake of lower-than-anticipated readings on both consumer and producer price inflation, fueling optimism that the Federal Reserve may not find it necessary to raise borrowing costs again.
This development triggered a surge across markets and led to a decline in Treasury yields. Some traders are now contemplating the possibility of multiple cuts to borrowing costs in the coming year.
Stephen Innes of SPI Asset Management noted, "This unexpected increase may further reinforce the view that the economic situation may require or at least suggest a shift in the Federal Reserve policy is warranted. When taken in conjunction with subdued readings on consumer and producer prices, this week’s claims update argues, at the very least, against additional Fed hikes."
However, traders are still anxious that the Federal Reserve has not ruled out the possibility of a potential hike if data takes a negative turn, prompting warnings about the economy possibly sliding into a recession.
Concerns about an economic downturn are highlighted by unemployment benefits reaching their highest point in two years, factory production dropping more than anticipated, and homebuilder sentiment hitting its weakest level in 2023.
During Asian trade, Sydney, Seoul, Singapore, Mumbai, Bangkok, and Wellington saw declines. On the other hand, Tokyo, Shanghai, Taipei, Manila, and Jakarta experienced slight gains.
Crude prices made a modest recovery but struggled to regain ground after Thursday's nearly five percent drop, which was fueled by concerns about demand, China's economic challenges, and increasing US stockpiles.
West Texas Intermediate entered a bear market, experiencing a decline of over 20 percent from its recent peak. Despite assurances from Saudi Arabia and Russia to uphold output cuts, the market found insufficient support.
– Key figures around 0700 GMT –
Tokyo – Nikkei 225: UP 0.5 percent at 33,585.20 (close)
Hong Kong – Hang Seng Index: DOWN 2.0 percent at 17,469.62
Shanghai – Composite: DOWN 0.1 percent at 3,054.37 (close)
Dollar/yen: DOWN at 150.63 yen from 150.76 yen on Thursday
Euro/dollar: UP at $1.0854 from $1.0851
Pound/dollar: UP at $1.2416 from $1.2411
Euro/pound: UP at 87.43 pence from 87.41 pence
West Texas Intermediate: UP 0.1 percent at $72.98 per barrel
Brent North Sea crude: UP 0.1 percent at $77.46 per barrel
New York – Dow: DOWN 0.1 percent at 34,945.47 (close)
London – FTSE 100: DOWN 1.0 percent at 7,410.97 (close)
Leave A Comment