Analyzing the Downward Spiral of Alibaba, JD.com, and PDD Holdings Stocks

Written By Michael Gary Scott

Chinese stocks faced another blow today as dismal economic updates dragged down the sector. The latest setback came in the form of China’s exports, which plummeted more than anticipated in March, shattering hopes for a recovery in the world’s second-largest economy.

Exports wield significant influence in the Chinese economic landscape, constituting approximately 19% of its total gross domestic product (GDP). They are often viewed as a potential glimmer of hope amidst the struggle of the Chinese consumer and the feeble domestic economy.

Last month, exports nosedived by 7.5%, while imports saw a 1.9% decline. Both figures fell far short of economists’ predictions.

Continued Economic Woes in China

Since the onset of the pandemic, the Chinese economy has been grappling with hardships as stringent COVID-19 measures stifled consumer spending, the vaccine rollout lagged in China, and the economy failed to rebound as expected post the early lifting of zero-COVID restrictions last year.

The recent export report underscores the frailty of the Chinese economy, casting doubts on the likelihood of a swift recovery. Moreover, U.S. stocks witnessed a sharp decline today following mixed quarterly results from major banks, signaling that high-interest rates could begin to exert pressure on the economy.

Alibaba holds a broader international presence than many Chinese stocks, catering to Southeast Asia through Lazada and other global markets via AliExpress. Nonetheless, the company remains reliant on demand from Chinese consumers and enterprises, with its Chinese e-commerce platforms, Tmall and Taobao, contributing roughly half of its revenue.

JD.com finds itself in a similar challenging position to Alibaba. Its growth trajectory has significantly slowed since the pandemic, and the company is struggling to compete against more agile online platforms like Pinduoduo and Bytedance, which have been aggressively cutting prices and encroaching on JD.com’s market share.

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While both Alibaba and JD.com are facing hurdles, PDD Holdings has emerged as a standout performer within the trio. PDD’s revenue continues to soar, driven by strong growth at Pinduoduo and the exceptional performance of Temu, which is rapidly gaining ground in the U.S. and other international markets with its competitive pricing strategies.

The Investment Landscape for Chinese Stocks

Investors in Chinese markets have faced tumultuous times in recent years. Although valuations may seem appealing, many risks persist, as evidenced by the disappointing export report. In fact, some risks might be exacerbating. Today, China instructed telecom companies to phase out foreign-made chips, potentially escalating a tech feud with the U.S. after the U.S. imposed restrictions on American companies exporting technologies to China.

While this move may not directly impact e-commerce platforms, they are likely to bear the brunt of any economic headwinds that ensue.

If considering investing in Chinese stocks, PDD Holdings appears as the most favorable choice among the three due to its rapid growth and market share acquisition capabilities. Nevertheless, given the recent challenges faced by Chinese stocks, adopting a cautious approach and taking a modest position is advisable.

Jeremy Bowman has holdings in JD.com. The Motley Fool has positions in and recommends JD.com and Alibaba Group. The Motley Fool endorses a disclosure policy.