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Market Outlook

How are expansion efforts driving Alibaba, Baidu and JD.com’s share prices?

Alibaba’s [BABA] share price, Baidu’s [BIDU] share price and JD.com’s [JD] share price have all told very different stories so far in 2020.

JD.com’s share price has been by far the most resilient of the Chinese tech stocks under consideration here. The e-commerce giant’s US-listing gained a massive 70.8% in the first half, but has slowed down somewhat in the second half, rising 25.27% to close at $75.16 on 29 September, which represents a year-to-date lift of 99.2%.

Fellow Chinese e-commerce retail giant, Alibaba, has also seen business improve because of the increased demand for online shopping. Although Alibaba’s share price dropped 1.85% in the first half of 2020, it has picked up since, climbing 28.24% so far in the second half to 29 September’s close. Alibaba’s share price is up 26.01% year-to-date.

70.8%

JD.com's share price rise in first half of 2020

  

Baidu’s share price, on the other hand, has struggled to keep up with its peers. Shares in China’s largest search engine fell 13.26% in the first half and, while the stock has risen 1.62% since then (through 29 September), it is down 11.32% year-to-date.

Long-simmering trade tensions between China and the US have continued heat up throughout this year and the backlash has seen many stocks opt for second listings in markets like Hong Kong.

So, what will that mean for shares in Alibaba, Baidu and JD.com?

 

Alibaba expands reach to factories

Since the release of Alibaba’s better-than-expected first-quarter earnings for the fiscal year 2021 on 20 August, Alibaba’s share price rallied 15.5% to a record high of $298 on 1 September.

The group grew revenues by 34% year-over-year to RMB153.7bn, and diluted earnings grew 18% year-over-year to RMB2.17 per share. Maggie Wu, CFO at Alibaba, said that its domestic core business had recovered to pre-COVID-19 levels “across the board”.

RMB153.7bn

Alibaba's Q1 revenue - a 34% YoY rise

  

The improved balance sheet lifted investor’s outlook, with Van-Sern Ling and Tiffany Tam, analysts at Bloomberg Intelligence, suggesting that it might deliver robust sales and profit growth at a pace similar to pre-pandemic levels in the upcoming holiday quarter.

Jack Ma, co-founder of Alibaba, has also expanded the group into new areas such as manufacturing with its smart factory, dubbed Xunxi. According to Bloomberg, the group showcased the new business on 16 September. 

 

JD.com looks to the cloud

Although JD.com is not a BAT stock — Baidu, Alibaba and Tencent [TCEHY] — it has been challenging market share with its expansion into the cloud.

In an effort to reach more customers globally, the company’s technology business, Cloud & AI, made a strategic partnership with US web infrastructure company Cloudflare [NET] in April.

The increased investments into its services will likely make it a viable contender in China’s cloud computing market, which is the second-largest in the world. At present, Alibaba Cloud has the largest share, followed by Tencent Cloud and Baidu AI Cloud, CNBC reported.

While it doesn’t currently report revenue from this segment, JD.com’s overall business is doing well off the back of strong online orders. In its second-quarter results, the company posted a 33.8% year-over-year jump in revenues to RMB201.1bn.

RMB201.1bn

JD.com's Q2 revenue - a 33.8% YoY rise

  

Baidu’s health bet

Unlike Alibaba and JD.com, Baidu’s second-quarter earnings were in the red. The company posted a 1% year-over-year decline in revenue to RMB26bn, showing signs of a slow recovery.

Despite strong growth in its Iqiyi streaming business — membership revenue jumped 19% year-over-year — Baidu’s share price fell following the announcement that it was being probed by the US Securities and Exchange Commission.

It wasn’t all bad news though, as Baidu’s new AI business posted double-digit growth in the quarter according to Robin Li, CEO of the company. This side of the business had partnered with 2,000 hospitals and healthcare institutions in an effort to bring health monitoring, drug development and disease diagnosis solutions.

$2billion

Amount Baidu plans to raise over next 3 years to develop a biotech business

  

It’s an area that Baidu looks to be increasingly pursuing, especially after CNBC reported on 10 September that it was in discussions with investors to raise close to $2bn over the next three years in order to develop a new biotech business.

The outlook for all three stocks appears to be optimistic, as they’re all rated a Buy by the analysts polled by MarketBeat. Alibaba’s consensus price target is $271.69, while JD.com is pegged at $62.25 and Baidu at $147.24.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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