What happened
Stocks of some of China's most popular companies were squarely in rally mode Monday, as the country's central bank signaled further support for the ongoing economic recovery.
With that as a backdrop, several of China's e-commerce stocks outpaced gains by the broader market. Shares of Alibaba Group (BABA 0.59%) rose 1.1%, JD.com (JD 6.12%) climbed as much as 3%, and PDD Holdings (PDD 2.80%) surged as much as 3.6% as of 12:35 p.m. ET.
There wasn't any company-specific news driving the gains, but broader economic and regulatory developments were the catalysts that drove the stocks higher.
Image source: Getty Images.
So what
The People's Bank of China said it will take additional steps to boost the country's weakening economy. In a statement released after a meeting of government policymakers, regulators announced plans to support the yuan from significant exchange rate fluctuations, providing stability for the currency.
The central bank pledged to "implement prudent monetary policy in a precise and forceful manner." The news comes amid China's decelerating economic growth and employment. Regulators cited a complex external environment and slowing investment and trade amid still-high inflation.
"The overall operation of the domestic economy has rebounded and improved, market demand has steadily recovered, and production has continued to expand," a report from the central bank read. "However, the endogenous driving force is still not strong, and demand is still insufficient."
The news came as evidence suggested China's economic growth had stalled. Manufacturing activity in the country grew at a slower pace in June. China's Caixin/S&P Global manufacturing PMI slowed to 50.5 in June, down from 50.9 in May, according to a report by Reuters. This marks the third consecutive month of slowing after robust growth in the first quarter.
Further adding to the slowdown was a weakening services sector, which grew at its slowest rate since pandemic-era restrictions ended late last year.
Early last month, China cut key interest rates in an attempt to boost the economy. Furthermore, some local governments are taking steps to improve employment, which should help drive economic growth.
Now what
E-commerce businesses are highly dependent on consumer spending, so an economic slowdown could signal tough times ahead for these digital retailers. However, it's also possible the economy is merely taking a breather before its next leg up -- only time will tell.
So far, investors are viewing the glass as half-full, using these positive developments to stock up on beaten-down Chinese tech stocks. Given the slowing organic growth, steps by the government to stimulate growth are being viewed as a net positive.
Any economic improvement in China will undoubtedly boost consumer spending, benefiting e-commerce platforms, including Alibaba, JD.com, and PDD Holdings.
Furthermore, fears of a slowdown have weighed on these stocks, which are now selling at compelling valuations. PDD, Alibaba, and JD.com are selling for 3.1 times, 1.5 times, and 0.3 times next year's sales, respectively, when a reasonable price-to-sales ratio is between 1 and 2.
For investors with a long-term outlook, now might be a good time to pick up shares of these stocks while they're on sale.
