January was a brutal month for China stocks as a cocktail of economic fragility, government interference, and regulatory unease dealt a heavy blow to the sector at large.
Among the casualties were JD.com (NASDAQ: JD), PDD Holdings (NASDAQ: PDD), and Baidu (NASDAQ: BIDU), plummeting by 22%, 13.3%, and 11.6%, respectively, based on data from S&P Global Market Intelligence. The iShares MSCI China ETF (NASDAQ: MCHI) also saw a substantial decline of 10.3%, underscoring the breadth of the turmoil.
Let’s unpack the performance of each stock over the past month.
A Rocky Start for Chinese Stocks
The year began on a sour note as China reported a modest 5.2% GDP growth for 2023, the lowest in three decades. The fourth quarter saw a further plunge to a mere 4.1%, painting a bleak picture for 2024. With Beijing advising against stock sell-offs and a court ordering the dismantling of China Evergrande Group, once a real estate giant, the real estate debacle has only added to the market’s woes.
These developments heaved additional pressure on China stocks, exacerbating the challenges faced by JD, PDD, and Baidu.
JD.com bore the brunt of the bearish storm in the past three months, despite scant company-specific news. The company’s fortunes dwindled in 2023 as growth plateaued, ceding ground to PDD Holdings’ Pinduoduo, which capitalized on its burgeoning social commerce model, delivering slashed prices to collective buyers.
Notably, founder Richard Liu’s public plea for a more competitive edge and acknowledgment of JD.com’s cumbersome, unwieldy nature echoed Alibaba founder Jack Ma’s similar call to arms.
Conversely, PDD Holdings initially shrugged off the sector’s languor but succumbed towards January’s close. Analyst remarks signaling that its Temu e-commerce app’s international surge might be tapering off might have spooked investors. The runaway success of Temu steered PDD’s revenue to a remarkable 94% spike in the third quarter, but such unprecedented ascendancy is unlikely to be sustainable as the company edges closer to a staggering $40 billion revenue run rate.
Baidu also faced turbulence mid-month following allegations linking its Ernie AI platform to military research. This raised the specter of heightened U.S. government restrictions on chip exports to China. Despite Baidu’s swift denial, the stock struggled to stage a recovery.
Image source: Getty Images.
An Uphill Battle for China Stocks
Currently, there appears to be scant hope of a remarkable rebound in the China tech domain. Apple recently reported flagging sales in China, crystallizing the portrayal of a faltering economy. While PDD has been a standout performer thanks to its rapid traction, the overall economic landscape in China seems arduous.
For potential Chinese stock investors, PDD holds promise, given its meteoric growth. Baidu’s AI chatbot also presents an alluring prospect, but investors would be wise to tread cautiously within the sector due to China’s persisting economic doldrums.