Chinese stocks fell again today as negative economic news weighed on the sector. This time, China’s exports fell more than expected in March, boosting hopes of a recovery in the world’s second-largest economy.
Exports are a significant part of China’s economy, accounting for about 19% of total 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 fell 7.5% last month while imports fell 1.9%. Both figures fell well short of economists’ expectations.
The news weighed on Chinese stocks broadly, and as of 2:23 p.m. ET Ali Baba (NYSE: BABA) was down 4% while JD.com (NASDAQ:JD) had given up 5%, and PDD holdings (NASDAQ:PDD) fell by 3.8%.
The bad news from China continues
China’s economy has struggled since the pandemic as strict COVID-19 restrictions weighed on consumer spending, access to vaccines in China was slow and the economy did not experience the recovery expected when it exited its zero-COVID restrictions early last year.
The export report highlights China’s weakness and makes an early economic recovery less likely. Additionally, U.S. stocks fell sharply today as major banks delivered mixed quarterly results and signaled that high interest rates could begin to weigh on the economy.
Alibaba has a larger international presence than most Chinese stocks, serving Southeast Asia through Lazada and other international markets through AliExpress. However, the company continues to rely on consumer and business demand in China, with its Chinese e-commerce sites Tmall and Taobao accounting for about half of its revenue.
Alibaba also suffered a setback when it abandoned its plan to spin off its cloud computing division due to U.S. export restrictions on semiconductors. The tech giant could use some help, but a further slowdown in China’s economy is likely to exacerbate its problems.
JD.com is in a similar position to Alibaba. Its once-strong growth rate has fallen since the pandemic, and the company has struggled to compete with more flexible online platforms like Pinduoduo and PDD’s Bytedance, which have aggressively discounted JD.com and taken market share from it.
JD.com’s fourth-quarter revenue rose just 3.6%, and the company is struggling to grow its third-party marketplace.
Finally, PDD was the standout performer in the group. Sales are still growing rapidly thanks to strong growth at Pinduoduo and the breakthrough performance of Temu, which is rapidly gaining market share in the US and other international markets using bargain pricing.
While these strong results have made PDD stock a winner, that doesn’t make it immune to problems in the Chinese economy. The problems are likely to weigh on consumer spending and overall economic growth.
Are Chinese stocks investable?
Most investors in China have made a mistake in recent years and while valuations appear cheap, many risks remain, as seen in the weak export report. In fact, some of them may get worse. Just today, China asked telecoms to phase out foreign-made chips, likely intensifying the technology war with the US after the US blocked American companies from supplying technology to China.
This may not directly impact these e-commerce platforms, but they will likely feel the residual impact of any headwinds on the economy.
If you’re interested in buying Chinese stocks, PDD seems to be the best of the three options given its rapid growth and ability to take market share from its competitors. However, given the recent challenges Chinese stocks have faced, taking a small position appears to be a prudent strategy.
Should you invest $1,000 in PDD Holdings now?
Before buying PDD Holdings stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and PDD Holdings wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor The service has more than tripled the returns of the S&P 500 since 2002*.
Check out the 10 stocks
*Stock Advisor returns from April 8, 2024
Jeremy Bowman holds positions at JD.com. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Why Alibaba, JD.com and PDD Holdings shares slipped today was originally published by The Motley Fool