Alibaba Stock Falls as China Deflation Nears Financial Crisis Levels. Temu’s Owner Could Benefit.

While a continued fall in pork prices is partly to blame for underwhelming price-growth figures, persistent deflation in China is a worrying reminder that the country faces deep economic woes that have yet to be addressed sufficiently through stimulus.

“China is still mired in a property slump, affecting wealth perceptions and making consumers more cautious about spending big,” said Susannah Streeter, an analyst at broker
Hargreaves Lansdown.
“Small stimulus measures aimed at increasing trading activity and lending into the economy…are likely to be sticking plasters rather than a longer term treatment for sluggish economy.”

The stock market reaction to the data was mixed, with the
Shanghai Composite
rising 1.3% but Hong Kong’s
Hang Seng Index
tumbling 1.3%. Mainland Chinese stocks have seen a rebound this week—helped by signs of support for the equity market from Beijing—after the mainland China benchmark closed at its lowest level since 2020 on Monday. It’s the last trading day before the Lunar New Year holiday—mainland stock markets will be closed Friday and won’t reopen until Monday Feb. 19. The Hang Seng will be closed on Feb. 12 and Feb. 13.

Pain was most pronounced among companies that are highly exposed to the health of Chinese consumers. Look no further than Alibaba, with U.S.-listed shares in the e-commerce giant sliding 2.9% in early Thursday trading, extending declines after the stock dropped 5.9% on Wednesday after quarterly earnings revealed the extent of the company’s woes. Online retail peer
JD.com
stock fell 3.5%.

But it was a different story for PDD, the company that owns Pinduoduo and the U.S. online shopping platform Temu.
PDD
has emerged as a fierce rival to Alibaba over the past year, as shoppers have flocked to the group’s more budget-friendly platforms amid the economic slowdown that has wracked China. 

PDD stock opened higher but pared gains to settle less than 1% lower, with investors less perturbed by the grim Chinese data and perhaps confident that continued consumer weakness in China may only see more people flock to Pinduoduo

The market capitalization of PDD eclipsed that of Alibaba in recent months, a symbolic reflection of how economic stresses in China are playing out in the stock market. That trend looks set to continue—and for investors that this week placed faith in the Chinese government’s conviction to prop up stocks, Thursday’s deflation gloom is a harsh reminder of how fast stimulus hopes can be undone by downbeat data.

Write to Jack Denton at [email protected]