Chinese stocks fell again today as negative economic news weighed on the sector. This time, China's exports fell more than expected in March, hammering hopes for a recovery in the world's No. 2 economy.
Exports are a significant part of the Chinese economy, accounting for roughly 19% of its overall gross domestic product (GDP). They are also seen as a potential bright spot at a time when the Chinese consumer is struggling and the domestic economy is weak.
Exports last month fell 7.5%, while imports were down 1.9%. Both numbers significantly missed economist expectations.
That news weighed on Chinese stocks broadly, and as of 2:23 p.m. ET, Alibaba (BABA 1.21%) was down 4%, while JD.com (JD -1.41%) had given up 5%, and PDD Holdings (PDD -1.58%) was off by 3.8%.
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The bad news out of China continues
The Chinese economy has been struggling since the pandemic as strict COVID-19 restrictions weighed on consumer spending, vaccine access was slow to arrive in China, and the economy failed to experience an expected recovery when it dropped its zero-COVID restrictions early last year.
The export report underscores the weakness out of China and makes it less likely the economy will recover soon. Additionally, U.S. stocks were down sharply today as big banks delivered mixed quarterly results and signaled that high interest rates could start to weigh on the economy.
Alibaba has more international exposure than most Chinese stocks, serving Southeast Asia through Lazada and other international markets through AliExpress. However, the company still depends on consumer and enterprise demand in China as its Chinese e-commerce sites, Tmall and Taobao, comprise roughly half its revenue.
Alibaba also experienced a setback when it abandoned a plan to spin off its cloud computing unit due to U.S. export restrictions on semiconductors. The tech giant could use some help, but a further weakening of the Chinese economy will likely add to its problems.
JD.com has found itself in a similar position to Alibaba. Its once-strong growth rate has been sapped since the pandemic, and the company is struggling to compete against more nimble online platforms, like PDD's Pinduoduo and Bytedance, which have been aggressively discounting and taking market share from JD.com.
JD.com's revenue grew just 3.6% in the fourth quarter, and it's struggling to grow its third-party marketplace.
Finally, PDD has been the standout performer in the group. Its revenue is still soaring thanks to strong growth at Pinduoduo and the breakout performance of Temu, which is rapidly gaining market share in the U.S. and other international markets with the help of bargain prices.
While those strong results have made PDD stock a winner, that doesn't make it immune from problems in the Chinese economy. The issues are likely to weigh on consumer spending and economic growth across the board.
Are Chinese stocks investable?
Most investors in China have gotten burned in recent years, and while valuations look cheap, many of the risks remain, as indicated in the weak export report. In fact, some of them may be getting worse. Just today, China told telecoms to phase out foreign-made chips, which seems likely to intensify a tech war with the U.S. after the U.S. blocked American companies from shipping technologies to China.
That might not impact these e-commerce platforms directly, but they will likely feel the residual effect of any headwinds on the economy.
If you're interested in buying Chinese stocks, PDD looks like the best option of the three here, considering its rapid growth and ability to take market share from its peers. However, given the recent challenges that Chinese stocks have faced, taking a small position seems like a prudent strategy.
