Today, the Chinese stock market experienced another day of decline, this time due to somber economic news dragging down the sector. The cause of this downturn was China’s exports plummeting more than anticipated in March, dashing hopes for a recovery in the world’s second-largest economy.
Exports play a crucial role in the Chinese economy, constituting around 19% of its overall gross domestic product (GDP). They are considered a potential silver lining during a period when the Chinese consumer is struggling, and the domestic economy is feeble.
Last month, exports saw a 7.5% decline, while imports dropped by 1.9%, both figures notably falling short of economist predictions.
The Continued Saga of Troubles in China
Since the onset of the pandemic, the Chinese economy has been grappling with struggles as stringent COVID-19 measures suppressed consumer spending, slow access to vaccines in China, and an absence of the expected recovery post the early lifting of its zero-COVID restrictions last year.
The export data amplifies the fragility of the Chinese economy, casting doubts on a swift recovery. Furthermore, U.S. stocks took a substantial hit today as significant banks reported mixed quarterly results, hinting at the potential burden of high-interest rates on the economy.
Alibaba boasts more international exposure compared to most Chinese stocks, catering to Southeast Asia through Lazada and other international markets via AliExpress. However, the company remains reliant on consumer and enterprise demand in China, with Chinese e-commerce platforms Tmall and Taobao contributing approximately half of its revenue.
Alibaba faced a setback when it had to abandon its cloud computing unit’s spin-off plan due to U.S. export restrictions on semiconductors. The tech giant is in dire need of assistance, but further weakening of the Chinese economy is likely to exacerbate its troubles.
JD.com finds itself in a similar predicament to Alibaba. Its once robust growth rate has dwindled since the pandemic, struggling to compete against more agile online platforms such as PDD’s Pinduoduo and Bytedance, which have aggressively discounted prices and snatched market share from JD.com.
JD.com only experienced a 3.6% revenue growth in the fourth quarter and is finding it challenging to expand its third-party marketplace.
On the other hand, PDD has stood out as the star performer among the trio. Its revenue continues to soar, propelled by the impressive growth at Pinduoduo and the stellar performance of Temu, which is swiftly gaining market share in the U.S. and other international markets with attractive bargain prices.
Assessing the Viability of Chinese Stocks
Many investors in Chinese stocks have faced setbacks in recent years, and although valuations appear attractive, numerous risks persist, as demonstrated by the feeble export figures. In fact, some risks may be worsening. Just today, China instructed telecoms to phase out foreign-made chips, potentially intensifying a tech war with the U.S. following the U.S.’s prohibition of American companies from shipping technologies to China.
While this might not directly impact these e-commerce platforms, they are likely to bear the brunt of any economic headwinds resulting from such actions.
For investors eyeing Chinese stocks, PDD emerges as the most promising choice of the trio, given its rapid growth and capability to capture market share from its competitors. However, in light of the recent challenges faced by Chinese stocks, adopting a cautious approach by taking a small position seems prudent.
Exploring PDD Holdings Investment Potential
Prior to investing in PDD Holdings, it is essential to consider:
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Jeremy Bowman has investments in JD.com. The Motley Fool has investments in and recommends JD.com, as well as Alibaba Group. The Motley Fool recommends exercising a disclosure policy.