China, the world’s second-largest economy, experienced a significant deflation in January, reaching levels not seen since the 2008-09 financial crisis. This has led to increased pressure on Alibaba and other Chinese stocks, creating an opportunity for PDD, the owner of Pinduoduo and Temu, to gain traction.
According to official data released on Thursday, China’s consumer-price index (CPI) dropped by 0.8% year over year in January, showcasing a deeper deflation compared to the 0.3% decline in December. These figures fell below economists’ expectations of a 0.5% fall.
The decline in pork prices has played a role in these underwhelming price-growth figures. However, the persisting deflation in China is a cause for concern, highlighting the deep economic woes that the country is currently facing, which have yet to be effectively addressed through stimulus measures.
Susannah Streeter, an analyst at broker Hargreaves Lansdown, expressed her perspective on the matter, stating, “China is still struggling with a property slump, impacting wealth perceptions and leading consumers to be more cautious with their spending. The small stimulus measures intended to boost trading activity and lending are only temporary solutions for a sluggish economy.”
In response to this data, the stock market displayed a mixed reaction. While the Shanghai Composite rose by 1.3%, Hong Kong’s Hang Seng Index tumbled by 1.3%. However, mainlander Chinese stocks have experienced a rebound this week, partially due to signs of support for the equity market from Beijing. This recovery follows the mainland China benchmark’s Monday closing at its lowest level since 2020.
It is important to note that mainland stock markets will be closed from Friday until Monday, February 19th, due to the Chinese New Year holiday. Similarly, the Hang Seng Index will be closed on February 12th and 13th.
The Impact of Chinese Consumer Health on Businesses
Alibaba and JD.com Experience Declines
The health of Chinese consumers has had a significant impact on various companies, particularly Alibaba. In premarket trading, the U.S.-listed shares of this e-commerce giant have slid 1.6%. These declines follow a 5.9% drop in stock value on Wednesday after the company’s quarterly earnings report revealed the extent of its troubles. Meanwhile, JD.com, an online retail peer of Alibaba, also experienced a dip in premarket trading, with its stock falling 1.7%.
PDD’s Resilience Amidst Economic Slowdown
In contrast, PDD, which owns Pinduoduo and the U.S. online shopping platform Temu, presents a different story. Despite the grim Chinese economic data, PDD’s stock advanced 0.7% in U.S. premarket trading. Investors seem unperturbed and confident that the company will continue to thrive, as more consumers turn to its budget-friendly platforms amidst the economic slowdown in China.
The Changing Dynamics: PDD vs Alibaba
Recently, PDD’s market capitalization has surpassed that of Alibaba, symbolizing how economic stresses in China are impacting the stock market. This trend is expected to continue, serving as a reminder to investors who have placed faith in the Chinese government’s efforts to boost stocks. Thursday’s deflation gloom highlights how quickly stimulus hopes can be undermined by disappointing data.
