BofA downgrades Alibaba bonds on higher policy/headline risk

Investing.com -- Bank of America downgraded Alibaba’s bonds on Wednesday based on increased policy and headline risks following the U.S. Department of Defense's designation of Tencent as a Chinese military company. 

The designation, while having no immediate legal consequences, raises concerns about potential future actions that could impact other Chinese tech firms, including Alibaba (NYSE:BABA ), according to the bank.

BofA notes that Alibaba’s bonds initially outperformed Tencent’s post-announcement, but they expect Alibaba to face more challenging fundamentals in the coming year. 

The analysts highlight keen competition and slow monetization of AI investments as key factors contributing to this outlook. 

"We expect BABA to see a less favorable fundamentals trend than Tencent in the next 12 months," they stated.

The downgrade reflects increased caution amid these risks. 

“We downgrade BABA bonds in the short end & belly to Marketweight and long end to Underweight,” said BofA.

The downgrade is attributed to "further increased policy/headline risk & Chinese investors’ weaker preference for long-dated bonds."

BofA’s concerns extend beyond Alibaba, as they watch for potential escalations by the U.S. government that could impose additional restrictions on Tencent or target other Chinese tech companies. 

 

Source: Investing.com