The whipping post

The Sliding Saga of Alibaba, JD.com, and PDD Holdings Stocks

A Freight Train of Misfortune for Chinese Stocks

The tale of Chinese stocks has taken a grim turn once more, as the weight of negative economic updates continues to drag them down. The most recent blow came as China’s exports plummeted beyond expectations in March, dealing a heavy blow to hopes for a resurgence in the second-largest economy globally.

China’s exports hold significant real estate within its economic landscape, constituting approximately 19% of its total gross domestic product (GDP). These exports shimmer as a beacon of hope during times of struggle for the Chinese consumer, amidst a backdrop of domestic economic fragility.

The March export data revealed a stark decline of 7.5%, accompanied by a 1.9% dip in imports. Both figures fell far short of the forecasts laid out by economists, casting a dark shadow over Chinese stocks at large. By 2:23 p.m. ET, Alibaba (NYSE: BABA) was grappling with a 4% descent, while JD.com (NASDAQ: JD) had slumped by 5%, and PDD Holdings (NASDAQ: PDD) was mired in a 3.8% retreat.

Someone on their laptop in front of the Hong Kong skyline.

Image source: Getty Images.

A Continuing Chronicle of Chinese Economic Woes

The turbulence in the Chinese economy has been a constant since the onset of the pandemic. The stringent COVID-19 restrictions cast a heavy pall on consumer spending, compounded by the sluggish arrival of vaccines in China. Even as China loosened its zero-COVID restrictions early last year, the expected recovery remained elusive.

The latest export report serves as a poignant reminder of the underlying frailty in China, dimming the prospects of a swift recovery. The somber undertones extend into the U.S. markets, which witnessed a sharp decline today, fueled by mixed quarterly results from major banks. Such results also hinted at the looming specter of high-interest rates weighing down the economy.

Alibaba stands out due to its expansive international reach compared to most Chinese stocks. The company’s footprint extends into Southeast Asia through Lazada and other global markets via AliExpress. However, Alibaba’s fortunes remain tethered to the pulse of consumer and enterprise demands within China, with its Chinese e-commerce hubs, Tmall and Taobao, accounting for roughly half of its revenue.

Further dimming Alibaba’s prospects was its recent decision to scrap plans for spinning off its cloud computing unit, thanks to U.S. export restrictions on semiconductors. While the tech juggernaut could use a lifeline, any additional weakening of the Chinese economy is set to compound its existing challenges.

JD.com mirrors Alibaba’s predicament to a large extent. The once-potent growth trajectory of JD.com has been sapped by the pandemic, leaving it struggling to fend off nimbler online platforms such as PDD’s Pinduoduo and Bytedance. These competitors have been aggressively cutting prices and devouring market shares from JD.com.

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JD.com’s revenue uptick limped along at a mere 3.6% in the fourth quarter, with a stilted growth narrative plaguing its third-party marketplace.

On the flip side, PDD Holdings has emerged as the jewel in the crown amongst the trio. Its revenue continues to soar, fueled by the stellar performance of Pinduoduo and the meteoric rise of Temu. The latter is swiftly snatching market share in U.S. and other international markets by offering tantalizing bargains.

Despite PDD’s stellar showing, it remains vulnerable to the broader woes plaguing the Chinese economy. The headwinds are poised to exert pressure on consumer spending and overall economic growth.

Navigating the Murky Waters of Chinese Stock Investments

Investors in the Chinese market have weathered a tempestuous storm in recent years. While valuations may glitter with a sheen of affordability, the prevalent risks, as underscored by the feeble export data, persist. In fact, some risks might be evolving into more menacing forms. Today, China delivered a directive to telecom companies to gradually phase out foreign-made chips, poised to escalate a tech tussle with the U.S. following restrictions that prevented American companies from exporting technologies to China.

Although this directive may not directly impact the e-commerce platforms, they are likely to feel the ripples of any economic headwinds that may ensue.

If delving into Chinese stocks beckons, PDD stands out as a beacon of promise amongst the trio, courtesy of its rapid growth trajectory and its prowess in snatching market share from its peers. Nonetheless, given the recent trials and tribulations haunting Chinese stocks, a cautious approach, with a modest position, might prove to be a prudent investment strategy.

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Jeremy Bowman has stakes in JD.com. The Motley Fool holds positions in and endorses JD.com. The Motley Fool stands by Alibaba Group. The Motley Fool advocates for a transparency policy.