Source: PaxForex Premium Analytics Portal, Fundamental Insight

Alibaba stock soared earlier this week after the company got a $2.8 billion fine from China's antitrust regulator, the State Administration for Market Regulation (SAMR).

It may seem odd that Chinese e-commerce stocks surged on the news, climbing 9% because the announcement had the opposite effect of buying and selling rumors/selling news. But that's because investors had feared the threat of a fine from SAMR since December when the agency first announced an investigation into Alibaba.

That announcement made Alibaba's stock drop 13% on Dec. 24, washing away $100 billion in market value, but Alibaba has recovered more than half of those losses today.

SAMR imposed a fine of $2.8 billion because it represents 4% of the company's 2019 sales in China, although the fine could have reached 10%. The dollar amount may seem like a huge fine, but investors seem to think it's more of a slap in the face. After all, Alibaba earned $9.1 billion in adjusted net income last quarter, which means the penalty is only about a month's profit. 

While investors feared the Chinese government's regulatory grip, the fine is also noticeably smaller than the fines paid by Facebook and Alphabet. Two years ago, Facebook was fined $5 billion by the FTC for violating consumer privacy rights, and the company's stock barely flinched. At the same time, Google was obliged to pay $9.7 billion in three antitrust cases in the EU.

Substantial fines seem to be a part of a big tech business, as these companies tend to accumulate monopoly advantages due to their size, which is partly why the stock has historically won.

In a statement, Alibaba said the company accepted the punishment "with sincerity," adding, "We are committed to providing a working environment for our merchants and partners that is more open, fairer, more efficient, and more inclusive in sharing the fruits of growth." The investigation focused on Alibaba's unfair treatment of its merchants, including restricting them from selling on other platforms.

It's not just about the fine; Alibaba says management will reduce the fees it charges its merchants and invest in new services for them. But the company doesn't expect the policy change to have a significant influence on its financial performance.

Investors are also more widely wary of reprisals against Alibaba after the Chinese government banned the IPO of Ant Group, Alibaba's financial arm, in November after rude remarks Alibaba founder Jack Ma made about government officials at a conference in October. For weeks, Ma was rumored to have "disappeared" as he stayed out of sight after the conference, and Alibaba stock skyrocketed when he made his public statement in January.

Ant Group, meantime, is now in the process of restructuring its business as a financial holding company to achieve compliance with Chinese regulators, but it is not clear whether another attempt at an IPO will be made.

Additionally, Alibaba and other Chinese businesses could be delisted from U.S. exchanges if they fail to comply with certain rules expecting them to reveal U.S. regulators their financial audits.

Chinese company shares tend to trade at a discount to their U.S. counterparts, in part because of investor caution about the influence of the Chinese Communist Party. However, the impact of Chinese antitrust laws, in this case, is not much different from similar laws in the U.S. and Europe. It can be seen not only in the fines imposed on Facebook and Google but also in the increased focus on all American tech giants, such as Apple and Amazon, around antitrust concerns. These include Amazon's treatment of its third-party sellers as well as Apple's 30% commission on app developers, both of which are reminiscent of the Chinese government's concerns about Alibaba.

Notably, Tencent, owner of WeChat and another Chinese tech giant, was reportedly authorized to proceed with the acquisition of Sogou, China's third-largest search engine-a sign that the Chinese government may not be as set to knock out big tech businesses as investors seem to think.

There is no doubt that Alibaba will face some risks ahead, but they don't seem much different from those faced by big U.S. tech stocks such as Facebook and Alphabet, which are awaited for companies that have become as powerful as they are.

With the antitrust investigation behind it, the biggest risk for Alibaba and its investors is still out there. While government intervention does pose a constant threat, the company is growing rapidly, and the stock is so cheap right now that it's still a great buying opportunity.

Provided that the company is traded above 225.30, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 239.23
• Take Profit 1: 265.70
• Take Profit 2: 276.20

Alternative scenario: 

In case of breakdown of the level 225.30, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 225.30 
• Take Profit 1: 208.30
• Take Profit 2: 198.30