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Alibaba’s Tiny Loss-Making Unit Suddenly Soars 70%

Jeanny Yu, Sofia Horta E Costa
The Alibaba Group Holdings Ltd. logo sits atop the company's headquarters standing near completion at the Greenland Centre, developed by Greenland Holding Group Co., in Beijing, China, on Tuesday, March 10, 2015. China set the lowest economic growth target in more than 15 years and flagged increasing headwinds that include a property slump, excess industrial capacity and disinflation. Photographer: Tomohiro Ohsumi/Bloomberg

A stock that until last week wasn’t covered by a single analyst has rallied 70 percent since May 16 for no apparent reason, at one point generating more turnover than some of Hong Kong’s biggest companies.

The sudden gains have made Alibaba Health Information Technology Ltd. -- a subsidiary of Chinese megacap Alibaba Group Holding Ltd. -- easily the best performing stock on the MSCI Asia Pacific Index this month. Some $135 million worth of shares exchanged hands on May 17, making it the fifth-most traded stock in Hong Kong and surpassing giants including HSBC Holdings Plc, PetroChina Co. and Bank of China Ltd., which are more than 20 times as valuable.

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Ali Health’s earnings report on May 16 showed a smaller loss and a surge in sales, triggering its biggest rally since 2015. The stock’s momentum shows no sign of abating, and what is sustaining the buying frenzy is something of a mystery. It’s been among the 10 most active stocks for investors based in Shanghai and Shenzhen through links with Hong Kong for almost every day this past week, where trading accounted for about half of turnover on its busiest days.

“Mainland capital was playing an important role in sending the shares up,” said Zhang Gang, a Shanghai-based strategist with Central China Securities Co. “Alibaba Health is obviously a good target for mainland investors as the company is backed by a tech giant. Health care is a hot sector on the mainland and the optimism spread to Hong Kong.”

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China Merchants Securities analyst Su Zhang initiated coverage of the company with a buy rating last week, targeting a price of HK$6.80 per share. As of 9:57 a.m. in Hong Kong, the shares were up 11 percent at HK$7.57. Alibaba Pictures Group Ltd., another unit of the retail behemoth, surged 27 percent on Thursday.

Ali Health’s moves are reminiscent of Fangda Carbon New Material Co., another little-known Chinese company that became the 11th most-traded common stock in the world last year.

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