Alibaba Group Holding (BABA), a key indicator of China’s tech sector, is enjoying its third consecutive week of gains, driven by investor optimism about upcoming government stimulus measures. This positive momentum is also being felt by Alibaba’s e-commerce rivals, including PDD Holdings (PDD), JD.com (JD), and Baidu (BIDU), which all saw gains on Friday.
China’s central bank has announced plans to reduce banks’ reserve requirement ratio (RRR) by 50 basis points and lower the seven-day reverse repurchase rate to stimulate domestic spending. Additionally, the government has agreed to allow homeowners to refinance their mortgages. These measures are aimed at boosting the struggling Chinese economy, which has been grappling with a slowdown in growth.
John Choi of Daiwa Securities believes that e-commerce companies are poised to be major beneficiaries of these stimulus measures. He notes that stocks are currently trading below their three- and five-year averages, presenting an attractive entry point for investors.
China’s stimulus package, unveiled on September 24, has already restored over $3 trillion in market value to Chinese stocks listed in Hong Kong, Shanghai, Shenzhen, and New York. Alibaba stock, in particular, has surged by 37% in the past 30 days. JD has climbed over 66%, Baidu has gained 33%, and PDD has soared by 65%.
The upcoming holiday shopping season is also expected to provide a tailwind for e-commerce stocks. Alibaba has allocated 40 billion yuan ($5.7 billion) in resources to its Taobao and Tmall platforms to capitalize on the massive Singles’ Day shopping festival on November 11.
Beyond e-commerce, Chinese electric vehicle (EV) stocks, including NIO (NIO), Li Auto (LI), XPeng (XPEV), and ZEEKR (ZK), also experienced gains on Friday. These companies are expected to benefit from China’s ongoing efforts to promote the adoption of EVs.
China’s economic challenges stem from its reliance on exports, an aging population, and the disruption caused by the 2020 pandemic, which significantly impacted its semiconductor supply chains. The country’s hyperscalars also faced intense regulatory scrutiny in 2020, leading to setbacks for companies like Alibaba. The real estate sector, which accounts for a significant portion of China’s GDP, has also been under pressure due to a regulatory crackdown on excessive debt among developers.
The U.S., Europe, and Japan have been taking steps to reduce their reliance on China for semiconductors, prompting a consolidation of their own semiconductor positions. This shift has been driven by concerns about China’s supply chain disruptions and its growing economic and geopolitical influence.
In August, China signaled an end to its regulatory crackdown on hyperscalars, offering a glimmer of hope for companies like Alibaba. This positive development followed a $2.8 billion fine imposed on Alibaba in 2021, representing 4% of the company’s 2019 revenue.
The future of the Chinese tech sector remains uncertain, but the recent stimulus measures and the easing of regulatory pressure suggest a potential for further growth. As the country navigates its economic challenges, the performance of its tech giants will be closely watched by investors around the world.
