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Investing in China is a roller-coaster ride at the moment, and the recent performance of Alibaba shares embodies all the ups and downs.

On Monday, Alibaba shares hit a one-month high after a five-day rally, fueled in part by Charlie Munger increasing his stake in the company and signs from a Chinese regulator that its tech crackdown may be easing.

But nearly as quickly as Alibaba’s prospects brightened, they darkened again on news that Beijing’s anti-monopoly bureau was on a hiring spree and reports that China’s government was ramping up oversight of the financial and banking sector.

Alibaba’s Hong Kong–listed shares closed down 4% on Tuesday in Hong Kong. (The Hong Kong Stock Exchange canceled Wednesday trading because of Typhoon Kompasu).

Alibaba’s bumpy road over the past few days signals what’s ahead for Chinese stocks.

This “isn’t even the end of the beginning” of the regulatory squeeze on China’s Internet firms, says Bruce Pang, head of macro and strategy at China Renaissance Securities. “The months ahead will be volatile,” he says. Investors may want to buckle up.

The light

Alibaba has borne the brunt of China’s tech crackdown, arguably more so than any other company. In November 2020, Beijing launched an antitrust investigation into Alibaba and scuppered the $37 billion IPO of its fintech affiliate Ant Group. Then this April, China’s competition regulator hit Alibaba with a record $2.8 billion antitrust fine. Beijing’s regulatory blitz has wiped billions in value from China tech giants, Alibaba in particular. Its shares alone have plummeted 56% since reaching an all-time high last October, cutting its market cap from nearly $840 billion to around $442 billion.

Shares of Alibaba hit a two-year low on Oct. 4, down 41% since the April antitrust fine.

But Alibaba’s stock showed signs of life on Oct. 5 after investor Charlie Munger disclosed that his publishing and investment firm Daily Journal Corp. had boosted its position in Alibaba by over 80% in the third quarter, according to a regulatory filing released early last week. Munger’s Alibaba stake is now valued at $45 million.

Alibaba’s Hong Kong–listed shares surged 19%, and its NYSE-listed ADRs jumped nearly 15% over the next week. Hong Kong’s Hang Seng Tech Index, which tracks the 30 largest Hong Kong–listed tech companies, saw a 7% boost from Oct. 5 to Oct. 11.

Alibaba shares continued their rally on Monday after China’s anti-monopoly bureau, the State Administration for Market Regulation (SAMR), announced a $530 million penalty on food delivery giant Meituan late last Friday—a sum that was just a fraction of the $2.8 billion fine the same regulator imposed on Alibaba earlier this year.

Shares of Meituan and Alibaba surged 8% in Hong Kong on Monday.

Investors perceived the light slap on the wrist as a sign that Beijing was relaxing its crackdown on Big Tech.

They are “realizing that we’re seeing the light at the end of the tunnel regarding Internet regulations,” wrote Brendan Ahern, CIO of KraneShares, a China-focused ETF provider, in a Monday note.

Meituan’s less-than-expected fine removed a regulatory “overhang” for the company, investment bank Jefferies said in a Sunday note. The fine, representing 3% of the company’s total revenue, indicates that Meituan has a “bright, long-term outlook,” noted Jefferies.

Other money managers were also feeling optimistic. For long-term investors, “prospects in China remain strong,” with Chinese tech firms undergoing the biggest correction and presenting the largest opportunity right now, said Dale Nicholls, portfolio manager for China special situations at Fidelity, in a China investment briefing last week, even before the Meituan fine was announced.

At large-cap tech firms like Alibaba, “there’s clear value emerging…and deep discounts of around 70%,” Nicholls said. “We saw a similar correction in 2018 that halved Tencent’s stock, for instance. But it means these are opportune times to add to positions when we see these corrections.”

Overhang

But Beijing was quick to dash any hopes that its regulatory campaign was over.

On Monday, a Wall Street Journal report outlined how Beijing is undertaking its most intense scrutiny of the country’s financial sector yet, which seemed to sap market optimism. Immediately after the news, Alibaba’s stock dropped 1%, though it rallied in the afternoon.

Before the markets opened Tuesday, Bloomberg reported that the SAMR is planning to expand its anti-monopoly bureau headcount from 10 to 40 by year-end, and to 150 in five years, a sign that its mission is only just beginning.

After an overnight selloff, Alibaba’s shares opened 5% lower on Tuesday.

Some investors have bought the dip in Chinese tech stocks in recent weeks, but “most others will likely want to wait until the dust settles a bit more,” says John Lau, head of Asian equities at investment firm SEI.

That may take some time.

In addition to tracking the SAMR’s next move, investors also have to weigh how China will enforce new regulations it has recently introduced, like a data security law, rules on companies’ use of algorithms, and restrictions on the overseas listings of Chinese firms, all of which could cripple Internet companies.

China’s tech clampdown was abrupt and is still feeding uncertainty, but some investors believe that the market overreacted negatively to certain stocks, says Lau. Even with the fluctuations of recent days, the valuations of tech firms “look increasingly attractive for long-term investors, with part of the risks already priced in,” says Pruksa Lamthongthong, senior investment director at Abrdn.

“What we’re seeing is a paradigm shift in Chinese regulation,” Pang said, and the journey won’t be over anytime soon.