What happened
Shares of leading Chinese internet stocks Alibaba (BABA 0.28%), Pinduoduo (PDD -0.18%), and Bilibili (BILI -1.45%) rose in June, according to data from S&P Global Market Intelligence, up 18.4%, 22.7%, and 14.5% during the month, respectively.
Chinese tech stocks rose amid a big government pivot. Since late 2020, Chinese regulators have embarked on a campaign to regulate, fine, and break up certain large technology companies in the country. After 18 months of the regulatory campaign, the popping of the country's property bubble last summer, and lockdowns from China's "zero Covid" policies beginning in March, the Chinese economy had weakened significantly this year.
However, in recent days and weeks, authorities appear to have pivoted from restriction to stimulus, and these three internet stocks rallied in response. Additionally, the country's "618" e-commerce shopping holiday showed growth over last year, which may have helped sentiment later in the month.
Bilibili also reported earnings, displaying strong user growth and engagement. Still, softer ad demand caused it to give underwhelming guidance -- hence, why the stock didn't go up as much as the others.
So what
On June 1, authorities officially lifted the lockdown in Shanghai, which had been under lockdown going back to March. That bit of relief coincided with the government unveiling 33 specific stimulus measures to help boost China's flagging economy. These measures encompassed cutting certain taxes and fees, boosting infrastructure investment, and other measures supporting industry and small business generally.
Specifically for the technology industry, other developments appeared to signal an easing of regulatory restrictions. Regulators approved a slew of new video game licenses about a week later. New game approvals had been put on hold last year over concerns about teen addiction. The new approvals could certainly help Bilibili, as the culture-oriented video platform is attempting to make a foray into self-developed games.
And perhaps most importantly, regulators ended their year-long campaign against Didi Global (NYSE: DIDI) and other newly public internet platform companies, reinstating their apps to the country's app stores. While this didn't directly affect any of the aforementioned companies, it does bode well in terms of China's tech sector generally. In particular, Alibaba had been a focus of regulators due to its large size and alleged market power abuses. Therefore, an end to the crackdown could be a welcome reprieve.
Finally, both Alibaba and Pinduoduo likely benefited after China's 618 shopping holiday, the second-biggest shopping holiday in the country after Singles Day in November. While Alibaba and Pinduoduo didn't report 618 sales, according to Beijing retail insights firm Syntun, e-commerce sales across 40 major marketplaces grew 23.3% over 2021 to RMB695.9 billion. That growth certainly seemed to ease concerns over a bad recession in China, at least for the moment.
Finally, Bilibili released its first-quarter results on June 9. Revenue grew 30%, quite impressive during a quarter with one month of lockdowns, but margins compressed. Ad revenue monetization came in softer than expected even as the company ramped revenue-share payments to creators by 53%. Still, management pointed to strong daily active user growth of 32% and increasing time spent on the app as positives.
However, management also guided to slightly lower sequential revenue in the second quarter, which was more affected by lockdowns, while also saying it was undergoing cost-cutting initiatives over the next few quarters.
Bilibili dipped initially on that soft outlook, but then rose into the end of the month with the others.
BABA Percent Off All-Time High data by YCharts
Now what
Despite their rise during June, all three of these stocks are still down substantially from their all-time highs in early 2021.
For those who feel comfortable investing in Chinese stocks, I would say now is as good a time as ever to add exposure, especially with the government's pivot from restraint to stimulus. Just be sure you understand the risks. With ongoing tensions between China and the U.S., as well as China's tacit support of Russia, geopolitical issues could continue to be a problem, even if these stocks seem cheap. Therefore, make sure to keep Chinese and international stock exposure within your allocation limits.
