The Alibaba growth sentiment has spread to the entire Chinese sector with the shares of other competing firms soaring following the news.
The shares of Chinese multinational e-commerce and tech giant Alibaba Group Holding Ltd (HKG: 9988) is trading at a very high growth rate today as the company said it is restructuring its business into 6 different independent divisions. Hong Kong-listed shares jumped by 12.23% to HKD94.55.
According to the company, the 6 subdivisions will help unleash its shareholder value and each of them can pursue an Initial Public Offering (IPO) whenever they are ready. The subdivisions includes the Cloud Intelligence Group which encompasses the firm’s cloud and artificial intelligence engagements.
The second subdivision is the Taobao Tmall Commerce Group which will cater to all online shopping platforms including Alibaba’s Taobao and Tmall. Also, the firm spinned off the Local Services Group, an outfit that covers Alibaba’s food delivery service Ele.me as well as its mapping.
Alibaba also revealed that Cainiao Smart Logistics will cater to all of its logistics demands with the Global Digital Commerce Group spun to focus on its cross-country e-commerce business including AlieExpress and Lazada. The 6th entity is the Digital Media and Entertainment Group which will henceforth be handling its streaming and movie enterprise.
Alibaba is undoubtedly one of the top drivers of the Chinese tech sector and the division of its entity is classified as its own proactive sacrifice to get the regulators off its back. The growth in the company’s shares has been described as a key relief for investors, rather than optimism for impending growth.
“The rally in the shares is not so much because the market expects greater profitability, rather than relief that tensions with the regulator seem to have been resolved,” said Guy Spier, a value investor and disciple of Warren Buffett.
Alibaba Restructuring and the Core Beneficiaries
The restructuring of the Alibaba business will benefit Chinese consumers a great deal as the split will open up avenues for more competition across the board. This positioning was backed by Spier who believes the move will be better for the entire Chinese tech ecosystem.
“This sets the stage for a more innovative Chinese tech sector and far more competition – so very good for Chinese consumers,” he said, adding that it “reduces concentration and the power of one business within China – which was making Chinese regulators uncomfortable.”
The Alibaba growth sentiment has spread to the entire Chinese sector with the shares of other competing firms soaring following the news. While JD.com Inc (HKG: 9618) inked a 1.92% growth as the competition for its ecommerce business will be reduced, Tencent Holdings Ltd (HKG: 0700) also recorded a 1.75% growth to join the uptrend.
“I think investors are saying what we saw in Alibaba, really the leader in China tech, that their plans might be utilized by others,” said Brendan Ahern, CIO of KraneShares, pointing to the ADR moves seen in Tencent, JD.com, and Baidu.
Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.
