The Chinese ecommerce market is benefiting from ease in government crackdowns, but rising competition could affect Alibaba, Tencent and others. The share price for Chinese ecommerce giant JD.com slumped last week as the company announced a subsidy spree to ramp up its competitiveness.
- Chinese tech is in recovery as state crackdown ends.
- JD.com’s share price falls amid rising China ecommerce competition.
- The Invesco Golden Dragon China ETF is up 5% year-to-date.
Chinese ecommerce players, including Alibaba [9988.HK], JD.com [9618.HK] and Tencent [0700.HK] are among Chinese big tech companies facing change as the government steps up measures to boost the economy.
Alongside this, newer names like PDD [PDD] are putting pressure on established peers.
Last week, ecommerce giant JD.com’s share price slumped as much as 11% amid wider concerns over impending price wars. JD.com has announced plans to spend 10bn yuan (￥) on a subsidy campaign and lower its prices to rival PDD.
Elsewhere, Tencent, another major player in Chinese ecommerce, is bearing the effects of investor concerns over censorship and regulatory risks, as dozens of ESG funds have offloaded more than $1bn worth of shares in the company over the last six months.
The Hang Seng TECH Index fell around 3% on Tuesday, 21 February, and has followed a downward trajectory in 2023, reaching its lowest levels this year on 27 February.
Chinese competition heating up
Under JD’s subsidy system, customers will be compensated if they can source equivalent goods at a lower price from rivals like Alibaba or PDD’s Pinduoduo app.
Companies are also entering new segments. ByteDance’s Douyin, the Chinese version of TikTok, is experimenting with food deliveries, thus setting itself up as a potential competitor for the delivery platform Meituan [3690.HK], with a view to claiming a chunk of China’s $145bn food industry.
For its part, Meituan is reportedly setting its sights on Hong Kong and also has plans to create 10,000 jobs in mainland China.
Despite this mounting competition, however, fourth quarter (Q4) 2022 forecasts are relatively upbeat.
JD.com is due to report on 9 March, with Zacks analysts predicting an EPS of $0.52 for its US listing, as opposed to $0.35 for the year-ago quarter. Tencent is due to report in March as well, while Alibaba reported a “solid” quarter last week, with earnings beating analysts’ expectations for Q3.
Tech in recovery
Beijing has cracked down on the tech sector over the last couple of years, and stocks slumped as a result of stricter regulations.
However, many Chinese tech stocks have risen since last year as the government moves towards promoting economic growth.
Guo Shuqing, party secretary of the People’s Bank of China, told the state-run Xinhua news agency that the crackdown on fintech companies was ending, with a plan to promote the healthy development of internet platforms. “We’ll encourage them to come out strong in leading economic growth, creating more jobs, and competing globally,” he said.
There are already signs of change. Despite this year’s falls, the Hang Seng TECH Index has risen almost 30% since its October 2022 dip, with Tencent and Alibaba shares leading the charge.
Artificial intelligence is another area of growth for tech firms, with Alibaba among those working on technology to rival ChatGPT. However, last week Chinese regulators told Tencent and Ant Group [6688.HK] to restrict access to the high-profile chatbot.
Ant Group, which owns the world's biggest mobile payment app Alipay, announced on 21 February that it has partnered with the country’s NBA league on video content and membership.
Funds in focus: Invesco Golden Dragon China ETF
The Global X China E-commerce and Logistics ETF [3124.HK] offers exposure to stocks, including PDD, which is the top holding as of 27 February, with 8.35% of assets under management (AUM). Alibaba is the fifth-largest holding, with 6.56% of AUM, Meituan is the 10th-largest at 5.13%, and JD.com is the 11th-largest at 5.02%.
The fund had fallen by 4.9% year-to-date.
The Invesco Golden Dragon China ETF [PGJ] is based on the Nasdaq Golden Dragon China Index, which tracks the assets of companies that get the majority of their revenues from China.
As of 27 February, PDD is the fund’s top holding, at 7.90% of AUM, Alibaba the second-largest, at 7.77%, and JD.com the third-largest, at 5.90%. PGJ is up 5% year-to-date.
Investors seeking exposure to Tencent stock could look at the iShares Hang Seng TECH ETF [3067.HK]. As of 27 February, its Hong Kong listing has the highest weighting in the fund, at 9.03%. The top six positions also feature the shares of Alibaba, Meituan and JD.com. The fund is down 5.1% year-to-date.
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.