Shares of Chinese tech stocks Alibaba (BABA +1.92%), Baidu (BIDU +1.81%), and JD.com (JD +0.25%) fell on Monday, down 2%, 5.9%, and 5.3%, respectively, in Monday's trading session.
The downdraft in China-oriented consumer tech names appeared entirely to do with the disappointing economic data that came out of China today.
NYSE: BABA
Key Data Points
"Only" 4.7% growth
In the second quarter, China reported just 4.7% economic growth, well below the 5.3% last quarter and below the 5.1% growth that analysts were expecting. While 4.3% growth may seem very strong, remember that, first, China is supposed to be an "emerging" economy and post growth rates above those of developed countries, with its government having set a target of 5% growth. Second, the country was lapping a very low base off last year's depressed numbers, making this miss highly disappointing.
Even worse for these companies in particular, the majority of that economic growth seemed to be concentrated in industrial production and exports sectors. Meanwhile, China's consumers still appear to be in a depressed mood. Retail-sales growth in June came in at just 2%, below the forecast of 3.3%, reflecting both a decline in tourism and Chinese consumers holding back. Initial reports out of the 618 shopping festival held every June also showed less-than-expected growth.
That likely spells disappointing Q2 earnings from these three companies when their numbers are released in July or August.
Even though Alibaba was down the least today, a sour mood among Chinese stocks could further limit or delay its planned IPOs of its cloud unit and its logistics unit, whose IPOs have already been scrapped once, each over the past year amid a depressed market.
Like Alibaba, Baidu is also investing in artificial intelligence R&D, but its main business is still levered to the Chinese consumer. Its core search engine is dependent on online marketing, and its other main business is a controlling stake in iQiyi (IQ +1.88%), one of China's leading streaming services. While digital marketing was slightly up last quarter, iQiyi reported a 5% decline.
Meanwhile, JD.com is highly concentrated in consumer e-commerce but especially big ticket items like electronics and appliances. With those items likely seeing depressed demand amid a tough consumer environment, it's no wonder JD shares trended lower today as well.
Chinese tech stocks were cheap and just got cheaper
The big question is whether these Chinese tech stocks are great value opportunities or value traps. After all, many of these once high-flying tech leaders now trade at just single-digit multiples of earnings estimates. Some have been quite bullish on Chinese stocks of late, including famous value investor David Tepper, as well as macroeconomic analysts at Goldman Sachs.
While one day doesn't make a trend, it's clear that there continues to be difficulties turning China's consumer economy around after "zero-Covid" lockdowns, the country's property-sector bust, and the regulatory clampdown on large tech companies.
China has introduced interest rate cuts and measures to shore up the ailing housing sector in recent months, but more is probably needed. Today's economic-data release seems to bear that out. China's Politburo is likely to introduce new measures to stimulate growth later this month, so interested investors should tune into that.
