The recent announcement of the break-up of Alibaba, the Chinese mega-conglomerate, is being viewed by market analysts as the start of a wave of "enormous opportunities" for global investors in China.
Market analysts are speaking out after the Jack Ma-founded business empire said on 28 March, it is planning to split into six units and explore fundraisings or listings for most of them.
Alibaba is a multinational technology conglomerate that operates various e-commerce, retail, and technology businesses, including online marketplaces, payment systems, cloud computing services, and digital media and entertainment platforms.
This overhaul is the biggest restructuring in Alibaba Group’s 24-year history.
It is hugely significant, not only because it’s an organisation that has huge influence over the world’s second largest economy, but because we also expect it to represent the end of Beijing-led regulatory crackdowns on various sectors, including tech.
China has been a magnet for foreign investment for decades as it typically offered buoyant returns and growth potential. But in the last couple of years, there have been a slew of investors shunning the country.
Foreign investment in China has seen a decline in recent years due to the unpredictable, full-throttle regulatory crackdowns initiated by Beijing. The tech industry, in particular, has been targeted by the government with regulations that restrict monopolistic practices, data privacy, and foreign investment in the sector. This led to a decline in the value of some Chinese tech stocks and a decrease in foreign investment in the sector. The government also introduced tough regulations in other sectors, such as education and real estate, which further triggered panic and uncertainty for investors.
According to Nigel Green, CEO and founder at deVere group of one of the world’s largest independent financial advisory, “One of the most notable regulatory crackdowns in recent years has been on the tech industry. In 2021, the Chinese government introduced new regulations that targeted major tech companies, including Alibaba and Tencent.
This led many global investors becoming extra cautious about investing in Chinese tech companies, as they feared additional regulatory blitzes and uncertainty. In turn, this led to a decline in the value of some Chinese tech stocks and a decrease in foreign investment in the sector.
However, the news of the splitting-up of Alibaba is expected to be welcomed by investors, as it shows that Beijing is cooling its corporate crackdowns and the restructuring provides more protections. Any new regulations will now likely not impact the whole organization, rather the individual division that that regulation covers. This is a landmark moment that is expected to herald the start of a wave of enormous opportunities in China for global investors as other tech titans and major organizations in other sectors make similar moves.
The timing is also bullish for investors as the world's second largest economy reopens after years of draconian lockdowns due to Covid. Also, China is transitioning from an export economy to a consumption one that ultimately will be more sustainable. Alibaba's break-up will reignite interest and, therefore, capital inflows from global investors seeking to build long-term wealth.
