World markets thought wrongly that China’s economy would rebound quickly after its tough three-year Covid lockdown. Instead, Western firms divested their manufacturing out of the country. This created mass unemployment, especially for the youths who graduated in 2022-2023.
Investors are realizing that the accelerating slowdown has no quick fix. China’s central bank cut prime rates by a paltry 10 bps to 3.55% on June 19. In addition, it unveiled an incredible $72 billion in tax breaks for EVs and other green cars. Unfortunately, markets yawned.
Nio (NIO) lost 14% last week, while Li Auto (LI), a hybrid automotive supplier, fell by just 3.6%.
In retail, JD.com peaked at over $40 last week. Alibaba (BABA), which announced a new CEO, failed to impress the markets. Shares failed to break out above $93.50.
Patient investors need to set low buying prices for JD and Alibaba while avoiding China EV companies. Online retail firms have the flexibility to control costs to expand margins. Conversely, the spending power of Chinese citizens is worsening. They have substantial losses tied up in real estate. They will have flexibility in shopping on Alibaba or JD but will sell their EV assets.
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