What happened
Shares of Alibaba (NYSE:BABA) took a dive today after the Chinese government said it would open up an antitrust investigation into the tech giant. The news comes just weeks after Beijing blocked the IPO of Ant Group, Alibaba’s fintech subsidiary, a further sign that the ruling Chinese Communist Party (CCP) is seeking to thwart Alibaba Founder Jack Ma’s power.

In a shortened session, Alibaba stock closed down 13.4%, wiping off approximately $100 billion from its market cap.

So what
In a brief announcement, China’s antitrust body, The State Administration of Market Regulation, said it had opened an investigation into Alibaba for monopolistic behavior, citing practices like preventing its vendors from selling on other platforms.

Jack Ma has been under a regulatory spotlight since October when he made several remarks that drew the ire of the CCP, mocking them for being too risk averse and criticizing the financial regulatory system in other ways. Chinese state-run media responded with its own attack on Ma and his speech, and shortly after that, it blocked the Ant Financial IPO, which was set to be the biggest ever in the world.

The CCP, which holds a degree of a power unlike any institution in the Western world, disliked Ma’s assertion of power and his criticism of the government, and appears to be responding by squeezing Ma’s enterprises.

Now what
It’s unclear how the investigation will play out, and China’s government should be wary of overstepping boundaries, as that could scare off Western investors and harm China’s own hegemonistic ambitions. However, the CCP’s degree of control and unpredictable behavior is one reason why Chinese stocks tend to trade at a discount to their American counterparts.

Alibaba, for example, now trades at a price-to-earnings ratio of just 24, significantly less than the S&P 500, even though the company is as dominant as any of the American tech giants, with strong positions in e-commerce, cloud computing, and digital payments, among other areas. Alibaba also posted 30% revenue growth in its most recent quarter, and its marketplaces, including Tmall and Taobao, generate more than $1 trillion annually in gross merchandise volume, more than any other e-commerce business in the world.

Based on Alibaba’s fundamentals, the sell-off may look like a buying opportunity, but there’s likely to be a dark cloud hanging over the stock until the investigation resolves.

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