Chinese stocks continued their long slide today, as stocks on Hong Kong and Chinese exchanges sold off overnight. The move downward was the latest sign that investor confidence in China was weakening, even as the government continues to take surprising steps to try to shore up the economy.
On Monday, China's state-owned banks tightened liquidity in order to support the yuan after the Shanghai Composite fell 2.7%.
That move dragged down Chinese stocks with U.S. listings, including Alibaba (BABA 0.59%), JD.com (JD 6.12%), and PDD Holdings (PDD 2.80%), the parent of Pinduoduo and Temu.
As of 12:09 p.m. ET, Alibaba stock was down 2% after falling as much as 4% earlier in the session; JD.com was down 3.3% after shedding as much as 6.6%; and PDD had given up 1.6%, compared to an earlier slide of 3.5%. Those losses came in spite of all three major U.S. indexes trading higher today.
Image source: Getty Images.
Chinese stocks keep going south
There's no single reason for the ongoing slide in Chinese stocks. A combination of downbeat economic data, concerns about weak consumer demand and a real estate crisis, and a recent track record of underperformance have driven foreign investors away and led to a broader crisis of confidence.
China reported 5.2% GDP growth in 2023, which would be strong for most countries, but that was its slowest growth rate in roughly 30 years. GDP growth slowed to 4.1% in the fourth quarter, showing it decelerating into 2024. China's population also shrunk for the second year in a row, adding to structural concerns about economic growth, as births in the country have continued to slide even after officials lifted the one-child policy.
Alibaba and JD.com have both been struggling with sluggish growth since the pandemic after years of rapid expansion, and those stocks have fallen to multiyear lows. Both of those companies are still solidly profitable, but their valuations have dropped sharply as growth has slowed.
Investors had initially cheered Alibaba's plan to spin off noncore businesses like Alibaba Cloud, but that plan took a setback when management said it wouldn't spin it off due to the impact of new U.S. chip export rules. Meanwhile, JD has been losing market share to rivals like Pinduoduo and TikTok parent Bytedance, and its top-line growth slowed to just 1.7% in the third quarter. Founder Richard Liu also urged the company to be more competitive with its new rivals.
PDD Holdings, on the other hand, has had much more success than its two biggest e-commerce competitors, JD and Alibaba. Temu has caught fire in international markets, and Pinduoduo's Groupon-like social commerce mode remains popular in China. PDD's revenue jumped 94% to $9.4 billion in the third quarter, and it reported an operating profit of $2.3 billion, showing it now has strong profit margins. The stock is now up 52% over the last year, though it is sensitive to the Chinese economy as well.
What's next for Chinese stocks?
The flight away from Chinese stocks by foreign investors is unlikely to be reversed easily, especially as the economic news out of the country continues to disappoint.
Some of those investors are moving their money to Japan, and it's unclear what kind of catalyst would help Chinese stocks rebound. Beijing has already ended its restrictive COVID-19 policies, and the population decline indicates that China could be sliding into a long-term deceleration in economic growth, much like Japan has experienced over the last generation.
The good news for investors is that valuations at Alibaba and JD have fallen substantially, making the stocks look cheap, but it would be foolish to try to call a bottom in Chinese stocks, as plenty of uncertainty remains and momentum is clearly against these stocks.
Pinduoduo looks like the best choice of these three stocks, given its strong growth and exposure to international markets through Temu, and it has managed to buck the broader headwinds thus far. At least part of its success has come at the expense of Alibaba and JD.
