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Why Alibaba Stock fell (again) on Friday

What happened

Shares of Ali Baba (NYSE: BABA) fell again on Friday, down to 5.3%. At the close of trading, the stock was down 1.3%.

The catalyst that brought the tech titan down was the latest reading on the Chinese economy – and the news was unsettling.

So what

China’s gross domestic product (GDP) rose just 0.4% year-on-year in the second quarter, its worst quarterly performance in more than two years. Furthermore, it was much worse than economists’ forecast of 1% growth and significantly lower than the 4.8% rise it generated in the first quarter. This suggests that China is likely to experience negative growth in the coming months, which could signal the start of a recession.

The country’s economy recently nearly came to a standstill as China continued to battle the pandemic, leading to government-mandated shutdowns in line with its “zero COVID” policy.

This was just one of many headwinds businesses have faced in China so far in 2022. A number of leading tech companies have been hit by a government repressionleading to tougher regulations, including tougher data protection rules and new tougher antitrust regulations.

Like the United States, China is struggling with rising inflation and its unemployment remains near record highs. In June, the unemployment rate was 5.5%, a slight improvement from April and May. But the conditions were even worse for young workers, since the rate was 19.3% for job seekers aged 16 to 24.

Now what

So what does this have to do with Alibaba? The company generates the vast majority of its revenue from its core e-commerce businesswhich is undoubtedly suffering from rising inflation and high unemployment, both of which reduce consumers’ overall purchasing power.

The austere economic reading follows the announcement that Alibaba was the target of government investigation in a data breach that compromised the personal information of as many as a billion Chinese consumers, after the data was revealed to be stored on Alibaba’s cloud.

Given the multitude of headwinds facing the company, investors might want to hold a position in Alibaba, at least for now.

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Danny Vena has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.