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Why Alibaba Shares Were Surging Today

By Jeremy Bowman – Updated Oct 7, 2021 at 3:35PM

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A U.S.-China summit and Charlie Munger's buying seem to be pushing the stock higher.

What happened

Shares of Alibaba (BABA 4.79%) 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 -1.71%) 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%.

A rock with the Alibaba logo on it.

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.

Jeremy Bowman owns shares of Alibaba Group Holding Ltd. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Stocks Mentioned

Alibaba Group Stock Quote
Alibaba Group
$90.06 (4.79%) $4.12
Daily Journal Stock Quote
Daily Journal
$273.06 (-1.71%) $-4.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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