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Alibaba Faces Strong Headwinds From Slowing Chinese Economy

While a slowing Chinese economy has turned out to be hard on steelmakers and auto manufacturers, it is also shaping up to be a drag on the heretofore always expanding Alibaba Group.

Lowered consumer spending has unsurprisingly dropped the value of this quarter’s transactions below initial predictions. Falling receipts, coupled with investor suspicion of Chinese stock, have doubled up to drop Alibaba’s stock price. The eCommerce giant was trading at 10 percent below the price at which it made its debut in a $25 billion U.S. initial public offering a year ago.

“I am concerned that some amount of money was lost by local Chinese investors. That money, therefore, won’t be available for consumption,” said Mark Yusko, chief investment officer of Morgan Creek Capital Management LLC in Chapel Hill, N.C. Morgan Creek has bought and sold Alibaba shares and is considering them again.

So how big will the miss be? According to Alibaba Investor Relations Chief Jane Penner, gross merchandise value will be “mid-single digits lower than our initial expectations.”

“We do think it will have an impact to the September quarter.”

Alibaba is the biggest and thus first to feel the effects, though competitors like JD.com Inc. are nervous that they will soon be feeling the burn; however, many are signaling strong revenue.

Alibaba’s Jane Penner noted that, overall, the economic slowdown hasn’t taken out spending in the Chinese market.

“We think this is more due to psychology than to an ability to spend,” Penner said. “We’re still seeing actually high engagement by buyers on our platforms.”

Alibaba’s shares closed out Tuesday (Sept. 8) at a new low point of $60.91, down 4.7 percent from the previous day and off 49 percent from a November high of $120. Shares climbed 5.5 percent on Wednesday.

The dip in stock price comes as the lockup of Alibaba’s shares post-IPO, set to expire on Sept. 19, becomes a cause of interest, if not concern, for investors.

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