Alibaba Stock Forecast: BABA sheds 5% as audit issues arise, market tanks

• BABA stock drops below $78 support, keeps bearish trend action.
• US government auditors in China are having difficulty with process.
• Chinese yuan hits lowest level ever against dollar.

Alibaba (BABA) stock has lost more ground early Thursday after Bloomberg released a story saying that the auditing activity taking place in Hong Kong of US-listed Chinese companies is off to an uneven start. BABA shares shed 4.8% to $77.13 on Thursday morning. Three things are broadly to blame. First, the US equity market is fumbling under the weight of expected further Fed interest rate hikes. Second, cooperation between the US government and the Chinese government over auditing requirements continues to be rocky. Third, the weakness in the Chinese yuan vis-a-vis the dollar is worrying some observers.

Alibaba stock news

Despite the Bank of England's boost to the US equity market on Wednesday, stocks in the US are once again tumbling. The Nasdaq has dropped 3.2% on Thursday, and the S&P 500 and Dow Jones have lost 2.4% and 1.9%, respectively. With the Nasdaq at the lower end of the three indices, we can see that most of the pain is still concentrated in technology stocks. These companies tend to trade at higher multiples and tend to have more room to fall. As a major tech company, Alibaba is likely to feel some pain as related mega cap stocks like Apple (AAPL) or Amazon (AMZN) also see declines. 

GDP revision data out this week is showing that inflation seems built in to the services sector, though the goods sector has broadly reduced price gains this summer. Inflation in the services sector tends to be more sticky and may be harder for the Fed to fight off. This will lead some critics to suggest that interest rate hikes will need to crest at a higher level.

An article from Bloomberg this morning suggests that the Securities & Exchange Commission's Public Company Accounting Oversight Board (PCAOB) might be having early difficulties in their task of verifying official audits of Chinese companies listed on US exchanges. PCAOB officials are working with auditors from PwC and Chinese officials to verify and evaluate audits of publicly-listed companies. Most of this is taking place on the 23rd floor of the Prince's Building in Hong Kong. 

Meetings between the three entities are going late into the night as the US officials ask for specific documents followed by Chinese officials determining whether these requests involve state secrets. Most of the information asked to be blacked out by Chinese officials involves the names of individual executives, addresses and salary levels. If the PCAOB determines that there is too much interference from Chinese officicals, that could be a deal-breaker for the hard-fought agreement worked out in August. Without full audit examinations by the PCAOB that pass certain legal strictures, stocks like Alibaba, Baidu (BIDU) and Tencent (TCEHY) could be delisted in the US.

On Wednesday, with the dollar charging ever higher, the yuan hit its weakest point ever – 7.21 yuan to the dollar. At one point the Dollar Index reached 114.50. The People's Bank of China warned banks not to bet against the yuan, but Beijing is partly to blame. The government has cut interest rates in 2022 just as the US has begun raising interest rates. This is a simple recipe for rearranging the exchange rate status quo. Smaller regional banks have also begun cutting their deposit rates in line with national headline rate cuts. A weaker yuan should help the export-driven economy, but pricier imported raw materials could also lead to higher domestic prices for the goods sold across Alibaba's domestic ecommerce channels. 

Alibaba stock forecast

BABA stock has now dropped below the $78 support level, which stems from the low on May 12. With $78 out of the way, next up is the five-year low from March 15 at $73.28. Though BABA stock quickly rode a wave back up to $124 at that time, there is no certainty it will happen again. The US market is much more melancholy now than it was in March.

More positive news from the Prince's Building might do the trick, but the US equity market is undergoing major turmoil at the moment. Reduced inflation or a hike in the unemployment rate will need to present itself before markets regain their composure. Also, a weaker dollar make both the markets here and around the world much happier. In the meantime, the Accumulation/Distribution lines appears to be trending down, a bad sign for BABA bulls.

BABA daily chart