Alibaba Group has been handed a record fine of $2.8 billion, but interestingly, its shares started pulling some positive numbers after the news.
Alibaba Group Holding Ltd (HKG: 9988) has been in the news lately with its antitrust investigation that created uncertainties among investors. The company has finally been found guilty of infringing the legitimate rights and interests of consumers. Alibaba Group was accused of forcing Merchants to list their products on just one of the many e-commerce platforms instead of having them listed on multiple platforms. Alibaba Group, therefore, has been handed a record fine of $2.8 billion, but interestingly, its shares started pulling some positive numbers after the news. There was a 6% surge in the pre-market trading in the US and closed on Monday with 6.5% higher in Hong Kong.
According to Morgan Stanley, the fine should lift the previous uncertain burden on the company and channel its focus on the fundamentals. It sounds possible that Alibaba shares investors are moving back into the market after realizing the outcome and the fate of the company.
Joe Tsai, the executive vice-chairman of Alibaba Group disclosed that he is not aware of any other anti-monopoly investigation on the company, and they are extremely happy to have seen the end of the case. However, regulators will subject the company under scrutiny on mergers, strategic investment, and acquisitions which are demanded in the review process.
They will also have to submit a compliance and self-examination report for three years to the State Administration for Market Regulation (SAMR). Tsai also revealed that they have the total support of the government who has affirmed their business model. In the afternoon trade in Hong Kong, Alibaba was able to record an 8% surge with 48.5 billion market value additions.
According to Everbright Sun Hung Kai analyst Kenny Ng, the stocks of Alibaba Group have been underperforming in the recent emerging stock economy. With the uncertainties behind them, the imposition of the fine will put the price of the stock back to its rightful place.
Alibaba has since 2015 demanded merchants not to use other e-commerce platforms, which according to the SAMR is illegal.
The rectification of this condition and the measurement to protect consumer interest and improve internal compliance would reduce its profit margin according to Lina Choi, Senior Vice President of Moody investors service.
Franklin Chu, President of Sage Capital in Rye, New York in a statement said that the record fine on the company is meaningful, but a price to pay in a bid to reconcile with the Beijing regime. He added that the shares have a lot of potential and the power of its core business makes its price undervalued by conventional measures.
The Laissez-faire approach executed by the regulators in the past years is over. SAMR is well equipped now with more staff to cover wider jurisdiction to effectively scrutinize the large tech companies in China.