What happened
Shares of Alibaba (BABA +2.85%) were rallying today on news of thawing tensions between the U.S. and China after President Joe Biden and Chinese President Xi Jinping agreed to hold a virtual summit. Additionally, Charlie Munger's Daily Journal (DJCO 1.63%) revealed in a filing earlier this week that it upped its stake in Alibaba by 83%.
As of 12:21 p.m. EDT, the Chinese tech stock was up 9.3%.
Image source: Alibaba.
So what
Chinese stocks are often sensitive to geopolitical events, and news that Biden and Xi will meet later this year could signal a thaw in relations between China and the U.S. The Trump administration attempted to pressure China via a trade war, and Biden seems to want to unwind some of the tariffs imposed during the Trump years. Additionally, some investors fear Alibaba could be delisted from U.S. exchanges. The summit could help take that issue off the table. An agenda for the meeting has yet to be set, but it's a step in the right direction for improved relations.
Separately, a filing Tuesday showed that Daily Journal, of which Munger is chairman, had bought nearly 150,000 shares of Alibaba in the third quarter, increasing its stake in the company by 83%. Munger, who is the vice chairman of Berkshire Hathaway and Warren Buffett's closest associate, has been outspoken about his support for Alibaba, and Daily Journal's stake is now worth nearly $50 million.
Now what
For a nearly 10% move in a mega-cap stock, the news is not particularly meaningful. There's no change in Alibaba's business fundamentals or China's tightening regulatory framework, which is the primary reason why the stock is down 50% from its highs a year ago.
Chinese stocks have been especially volatile in recent months due to the government crackdown, but prospects for a more favorable U.S.-China relationship could help turn the tide. Investors should keep an eye on the upcoming summit.
