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Alibaba share price rises after China cuts US tariffs

Asian equities, including Alibaba Hong Kong, rallied following the Chinese government's announcement of tariff roll-backs.

Chinese e-commerce giant Alibaba Group Holding Limited's Hong Kong listing rose 0.46% to a two-week high price of HK$218.40 per share on Thursday 06 February.

The rally took place after the Chinese government announced earlier that day that it would reduce tariffs on some US$75 billion worth of goods imported from the US.

As part of the roll-backs, a list of US imports that were levied 10% and 5%, will be halved to 5% and 2.5% respectively starting 14 February.

Similarly, the US will also lower tariffs on roughly US$120 billion worth of Chinese products from the present 15% to 7.5% from 14 February.

Asian stocks rise across the board

Alibaba was not the only Hong Kong listing that received a price boost. The Hang Seng Index, the stock benchmark that measures all equities traded on the Hong Kong Stock Exchange, also ended Thursday 2.5% higher in its best single-day performance since September.

Japan’s main benchmark Nikkei 225 index also finished the day 2.3% higher, while China’s primary index – the Shanghai Composite, made gains as much as 1.7%.

‘The news overnight that China is to halve tariffs rates on US$75billion of imports from the US beginning on February 14 has seen markets in Asia push on further this morning,’ Deutsche Bank analysts said in a Thursday note.

‘That being said, it shouldn’t be surprising news as this comes after both nations had agreed in Phase 1 negotiations that they would reduce tariffs on each other’s goods as part of the deal.’

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Coronavirus impact softened

Last Friday (31 January), Asian stock markets and major equities suffered their steepest declines in months, thanks to risk-off sentiments and panic selling triggered by Wuhan coronavirus concerns.

Alibaba’s Hong Kong share price was case in point. Last week, the internet company saw its share price slashed by 6.6% to a two-month low of HK$200.40 per share.

On Monday, the Shanghai Composite Index also suffered its biggest fall since 2015, despite its trading resumption being delayed by two working days.

Analysts said the tariff cuts could not have come at a better time. In fact, Julian Evans-Pritchard, a China-focused economist at research company Capital Economics, told The Financial Times that worsening market conditions might have led to the government’s bringing forward of the tariff cuts.

‘Given everything else that’s going on they don’t want trade tensions to flare up again,’ he said.

Alibaba’s growth plans remain intact

But the coronavirus should not have a lasting impact on financial markets, said Zhang Ming, an economist at the state-funded think-tank Chinese Academy of Social Sciences. ‘Such epidemic will affect the economy, but the effects will be limited and only for a short term,’ he told Bloomberg TV.

This already seems to be the case, as Alibaba’s share price started to rebound earlier this week, rising around 4.6% by Wednesday.

Alibaba’s long-term investor prospectus – in which share price is expected to top US$280 at some point this year on the back of its ‘Digital Economy’ strategy – remains intact for now.

Alibaba Group Holding Limited Hong Kong is currently trading at HK$215.20.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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