Alibaba stock falls as China’s deflation approaches financial crisis levels. Temu owners could benefit.

The continued decline in pork prices is a contributing factor to the overwhelming rate of inflation, but continued deflation in China means the country is in deep economic distress that has not yet been adequately addressed by stimulus measures. This is an alarming reminder of what we are currently facing.

Susannah Streeter, an analyst at brokerage firm Hargreaves Lansdown, said: “China remains in the grip of a real estate recession, which is impacting perceptions of the wealthy and making consumers more cautious about big spending. ”
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“Small stimulus packages aimed at increasing trade activity and lending to the economy are likely to be more of a Band-Aid than a long-term cure for a struggling economy.”

Stock market reaction to this data was mixed.

shanghai complex

rose 1.3%, but Hong Kong

Hang Seng Index

Down 1.3%. Mainland stocks rebounded this week, helped by signs of support for the stock market from the Chinese government, after the mainland benchmark ended at its lowest since 2020 on Monday. This day is the last trading day before the Lunar New Year holiday. Mainland stock markets will be closed on Friday and will not reopen until Monday, February 19th. Hang Seng Market will be closed on February 12th and February 13th.

The pain was most pronounced for companies with greater exposure to the health of Chinese consumers. Look no further than Alibaba. The e-commerce giant’s U.S.-listed shares fell 2.9% in early Thursday trading, extending its decline after the stock fell 5.9% on Wednesday after quarterly results revealed the extent of the company’s woes. did. Shares in online retailer Jingtocom fell 3.5%.

But it was a different story for PDD, which owns Pinduoduo and US online shopping platform Temu. PDD has emerged as a fierce rival to Alibaba over the past year as shoppers flock to the group’s more affordable platforms amid the economic slowdown plaguing China.

PDD stock opened higher, but pared its gains and settled down less than 1%. Investors aren’t too fazed by China’s grim statistics, perhaps confident that continued weakness in Chinese consumers may only draw more people to Pinduoduo.

PDD’s market capitalization has surpassed that of Alibaba in recent months, a symbolic reflection of how China’s economic stress is affecting the stock market. This trend is likely to continue. And for investors who were banking on Beijing’s belief this week to support stock prices, Thursday’s deflationary gloom was a stark reminder of how quickly hopes for economic stimulus can be dashed by indicators of economic weakness. It turns out.

Email Jack Denton at jack.denton@barrons.com.