Shares of Chinese technology stocks Alibaba (NYSE: BABA), Baidu (NASDAQ: BIDU)and JD.com (NASDAQ: JD) retreated on Monday, falling 2%, 5.9% and 5.3%, respectively, in Monday’s session.
The bearish trend in China-oriented consumer tech names appeared to be entirely related to disappointing economic data out of China today.
“Only” 4.7% growth
In the second quarter, China reported just 4.7 percent economic growth, well below the 5.3 percent in the previous quarter and below the 5.1 percent growth analysts had expected. While 4.3% growth may seem very strong, remember that, first, China is supposed to be an “emerging” economy, and then growth rates above those of developed countries, with its government having set a growth target 5%. Second, the country was losing a very low base from last year’s flying numbers, making this loss extremely disappointing.
Worse for these companies in particular, most of this economic growth seemed to be concentrated in the manufacturing and export sectors. Meanwhile, China’s consumers still appear depressed. Retail sales growth in June was just 2%, below the forecast of 3.3%, reflecting both a decline in tourism and a holdover by Chinese consumers. Initial reports from the 618 shopping festival held every June also showed less than expected growth.
That likely means disappointing second-quarter earnings from those three companies when their numbers come out in July or August.
Although Alibaba was marginally lower today, a poor mood among Chinese stocks could further limit or delay the planned IPOs its cloud unit and logistics unit, whose IPOs have already been canceled once each over the past year amid a market downturn.
Like Alibaba, Baidu is also investing in AI R&D, but its core business still lies with the Chinese consumer. Its main search engine depends on online marketing and its other main business is controlling share iQiyi (NASDAQ: IQ ), one of China’s leading streaming services. While digital marketing was slightly up last quarter, iQiyi reported a 5% decline.
Meanwhile, JD.com is highly concentrated in consumer e-commerce, but particularly in big-ticket items such as electronics and appliances. Given that these items are likely to see declining demand amid a tough consumer environment, it’s no wonder JD’s shares fell today as well.
Chinese tech stocks were cheap and just got cheaper
The big question is whether these Chinese tech stocks are great value opportunities or value traps. After all, many of these once top tech leaders now trade at single-digit multiples of earnings estimates. Some have been quite bullish on Chinese stocks lately, including the famous value investor David Tepperas well as macroeconomic analysts at Goldman Sachs.
While one day doesn’t make a trend, it’s clear that there are still difficulties turning around China’s consumer economy after the “zero Covid” lockdowns, the collapse of the country’s real estate sector and the regulatory crackdown on big tech companies.
China has introduced interest rate cuts and measures to support its troubled housing sector in recent months, but more is likely needed. Today’s release of economic data seems to confirm this. China’s Politburo is likely to introduce new measures to boost growth later this month, so interested investors should tune in to that.
Should you invest $1,000 in Alibaba Group right now?
Before you buy shares in Alibaba Group, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think it is 10 best stocks for investors to buy now… and Alibaba Group was not one of them. The 10 stocks that made the cut could produce huge returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $791,929!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio construction guidance, regular analyst updates, and two new stock picks every month. The Equity Advisor service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns from July 15, 2024
Billy Duberstein and/or its clients have no position in any of the listed stocks. The Motley Fool has positions and recommends Baidu, Goldman Sachs Group and JD.com. The Motley Fool recommends Alibaba Group and iQIYI. The Motley Fool has one disclosure policy.
Why Alibaba, Baidu and JD.com were down today originally published by The Motley Fool
Leave a Reply