China’s latest economic figures are disappointing and the outlook doesn’t look any better. Shares of Alibaba Group Holding Ltd. and other major Chinese companies, including PDD and JD.com, fell on Wednesday.
China’s gross domestic product (GDP) expanded by 5.2% in the fourth quarter and in 2023 as a whole, according to data released by the National Bureau of Statistics on Wednesday. Although this exceeded the Chinese government’s official growth target of about 5%, it was still one of the lowest levels in decades.
Chinese internet company Alibaba’s American Depositary Receipts fell 1.9% in early trading. Peer JD.com’s ADR fell 5.1%, while PDD (parent company of Pinduoduo and Temu) fell 2.8%.
The decline followed a similar move in the Hong Kong stock market.
Hang Seng Index
Shares fell 3.7% on Wednesday to close at a nearly 15-month low.
There is a possibility that the Chinese government will intervene in response to this recession and take measures to restore economic confidence, but so far there has been no sign of such action.
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“We expect the subsequent growth momentum of China’s economy to stabilize at a subdued level through 2024, with the effects of economic resumption waning and the real estate sector remaining a drag, with government policies expected to support annual growth in 2024. “The rate will slow to 4.4%, limiting downside risks rather than providing a significant boost to growth,” Julius Baer economist Sophie Altermatt said in a research note on Wednesday.
Despite the fact that Chinese stocks are currently trading at what appears to be cheap valuations (for example, Alibaba ADR has a price-to-earnings ratio of 9.6 times), investors are worried about regulatory crackdowns, U.S.-China tensions, It is being avoided due to slowing economic growth.
Shaky consumer confidence and concerns about China’s demographics, which are set to shrink for the second year in a row in 2023, are bad news for the e-commerce business that China’s big tech companies have built their businesses on.
Companies like Alibaba and Tencent Holdings
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It has diversified into areas such as cloud computing and now artificial intelligence, but is vulnerable to disruption caused by tensions between the United States and China over access to advanced technology. Last year, Alibaba said it would not spin off its cloud computing unit, which also works in artificial intelligence, due to risks to its business from U.S. export restrictions on advanced computer chips.
Chinese search company Baidu’s share price fell this week after reports that its AI chatbot had been tested by scientists connected to the Chinese military, again exposing its vulnerability to U.S. sanctions concerns. Although the Internet company denied any knowledge of the study, its ADRs are still 13% lower than before the report.
Still, some analysts think there’s a bargain. UBS analysts rate Alibaba, Baidu, and Tencent as “buys.”
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“Among Chinese internet companies, we believe Alibaba will benefit from the increased use of edge computing. [the] Years of research and development in edge computing have ushered in the era of generative AI. “We believe that other Internet and Cloud vendors, Tencent and Baidu, are also direct beneficiaries in this theme,” UBS analyst Kenneth Fong said in a recent research note. Masu.
Email Adam Clark at adam.clark@barrons.com.