What happened
Shares of Chinese e-commerce platforms Alibaba (BABA -0.94%), JD.com (JD 0.12%), and Pinduoduo (PDD -1.05%) were rallying on Monday, up 3.5%, 6.7%, and 4.3%, respectively, in Monday trading.
There wasn't any company-specific earnings news today, as JD.com reported first-quarter earnings on Thursday of last week. Alibaba reports this week, and Pinduoduo reports later this month.
While JD.com beat expectations last week, today saw an Alibaba executive make positive comments on its core Taobao e-commerce platform. Moreover, Chinese tech stocks may have been helped by news that value investor Michael Burry of The Big Short fame added to his stakes in Alibaba and JD.com in the first quarter, making them his largest positions on the long side.
So what
Following its March announcement that it would split into six different business units, Alibaba apparently got a new jolt of enthusiasm on Monday. Today, Alibaba published the notes from a conference last week in which Taobao CEO Trudy Dai made very bullish comments on Alibaba's core e-commerce marketplace, saying, "We will make huge, historic investments to scale up the user base for the benefit of merchants." She continued, "We will drive content creation in all areas, with much larger investment in content than ever before."
The declaration of big investments in tech and content is quite bullish. That's not only because increased investment may benefit other tech companies that may supply Alibaba, but it's also indicative that Alibaba sees demand returning to its platform. In recent weeks, investors have fretted that the Chinese economy might not be bouncing back as quickly as expected after COVID-19 restrictions were lifted back in December. So, this executive's announcement may have encouraged Chinese investors today, as most major Chinese tech and consumer names are up substantially today.
The message from Alibaba follows on JD's strong first-quarter results late last week, in which revenue rose 1.4% and adjusted (non-GAAP) earnings per share of $0.69 handily beat analyst expectations for $0.50.
Finally, likely helping both Alibaba and JD today on top of these other factors, Michael Burry's Scion Asset Management released its 13F filing. That's the filing all major hedge funds of a certain size must make, disclosing their trades and long positions as of the end of the last quarter. Today, Scion revealed it had increased its Alibaba and JD stakes by 100% and 233%, respectively, making JD its largest position at 10.3% of its portfolio, and Alibaba the second largest at 9.6%.
The optimism appears to be sectorwide, as Alibaba and JD.com challenger Pinduoduo also rose today. Interestingly, Pinduoduo is not only taking its low-cost group-buying platform to the two large incumbents, it's also looking to expand overseas. Pinduoduo launched its U.S. site Temu late last year, and in 2023, even launched a pricey Super Bowl ad for the new platform. And just this month, the company made the eye-opening move of changing its headquarters from China to Ireland, in a bid to boost its international bona fides and take advantage of Ireland's low-tax structure.
Now what
Chinese stocks remain somewhat of a risk, mostly due to geopolitical concerns should the tensions between China and the U.S. get worse. After all, it appears Pinduoduo is betting it will find favor in overseas markets outside of China. Yet while that risk remains an overhang, these stocks also generally trade at very cheap valuations when compared with their U.S. tech counterparts.
It looks as if Michael Burry is willing to tolerate the risk in return for outsized performance. However, interested investors will have to figure out their own tolerance for geopolitical risk in terms of how much overall exposure they want to China.
