Economic figures affirm an ongoing weakness in China. Business is not thriving in the post-Covid lockdown. After three long years, the Chinese people likely drew down their savings. They are wary of spending.
Western corporations are diversifying their supply chain. They moved some or all of their manufacturing out of China. The economic slowdown in Western countries is also hurting China.
JD.com (JD) and Alibaba (BABA) are most vulnerable to the slow economic rebound. They must spend heavily on advertising and promotions to drive consumer product sales. Pinduoduo, known as PDD, launched Temu recently with great success. Their cheap product prices are too effective for Alibaba.
Expect PDD stock to outperform while BABA stock is considered one to sell.
JD and Alibaba’s business restructuring is another risk for China tech investors. They may not unlock value when the underlying units face a slowdown. Both firms have cloud-computing offerings. However, they need to slash prices to avoid losing more customers. The price cuts for cloud products and e-commerce increase their downside risks.
The China government eased regulations against tech firms already. It now must introduce loose monetary policy and cut interest rates to prevent the slowdown from worsening.
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