Alibaba faces another round of massive sell-off by SoftBank, is it a bearish or bullish signal?

Last night, a report by Financial Times about Softbank nearly clearing its holdings in Alibaba was seen as a hefty blow to the already struggling market, and marks another round of selling by major shareholders of Chinese firms like Tencent and Meituan.

After reading the report, the Dolphin noted that Softbank actually disclosed in early March via the SEC that it had sold/pledged about 184 million Alibaba shares (7.1% of total outstanding shares) under a forward contract to several cooperating securities firms.

Back in August last year, the Dolphin had commented on Softbank's previous major reduction in holdings of Alibaba through forward contracts in an article titled "Has the relationship between Softbank and Alibaba run its course?" (https://longportapp.com/zh-CN/topics/3301899?app_id=longbridge). By then, Softbank's shareholding dropped to 14.6%, or about 378 million shares (but quite a significant portion of the remaining 14.6% could have been reduced through various derivative contracts, and have not yet been officially delivered).

According to the Financial Times and the data agencies behind it, this time around, Softbank still holds about 98 million shares of Alibaba that have not yet been sold via various channels, accounting for about 3.8% of the total outstanding shares. With this news, the market is concerned that a large amount of selling pressure may lead to downward pressure on Alibaba's stock price, causing it to fall by nearly 6% in the US stock market overnight.

The Dolphin believes that, based on past experience, Softbank is unlikely to redeem its Alibaba shares pledged to brokers under forward contracts, and will eventually deliver them fully to the brokers to decide how to deal with them. Although this will create continuous selling pressure for a certain period of time, the Dolphin believes this is not incremental bearish news because Softbank's reduction of Alibaba holdings has been slowly and steadily ongoing, rather than a sudden dumping of a huge amount of shares to the market on the day of reduction announcement.

At the same time, Softbank still holds only 3.8% of Alibaba's shares which have not yet been reduced, which means that the "sword of Damocles" hanging over Alibaba's head from Softbank's reduction has basically landed safely. After the market digests the current selling pressure, there will be no more pressure from major shareholders to sell Alibaba stock. In the words of brokers, this is a case of "the bearish news being fully released."

Therefore, whether it is for Alibaba or other e-commerce stocks, the Dolphin believes that the current appropriate investment strategy is to gradually bottom-fish at a valuation and sentiment low point, and earn benefits from the subsequent valuation rebound after the stock price enters a safe margin.