Lone bear who predicted Alibaba’s US$220 billion stock crash warns of valuation sinkhole as US delisting risk mounts
- Alibaba has declined 39 per cent in New York since lone bear from DZ Bank cut his rating to a sell, precipitating a US$220 billion loss of market value
- Muhl is waiting for two scenarios to play out before reconsidering his bearish view on Alibaba and Chinese tech sector
Manuel Muhl, who downgraded Alibaba Group Holding to a sell in late July before its 39 per cent plunge, said he has been getting a lot of queries from clients raring to pick the bottom. He said the stock remains a valuation trap.
While Alibaba has an intrinsic value, that appeal is not being properly reflected in the stock price, he said in an interview. That is because regulatory risks at home and delisting pressures in the US are key drivers of the stock’s worth, making it difficult to set a buffer on the downside.
The stock trades at three standard deviations below the five-year average in terms of price-earnings multiple, according to Bloomberg data. That compares with 0.5 deviation for JD.com and 1.5 for Tencent Holdings.
“The fear that the ADRs will be delisted, the worry that more regulatory pressure is on the way, have led to those massive sell-offs and right now it is not possible to find an adequate risk premium for the sector,” he said. “Every time you start thinking about a recovery, something else pops up and everyone is forced to react.”