Why Alibaba, Baidu, and JD.com Are Down Today

Shares of Chinese technology stocks Alibaba (Baba -2.06%), Baidu (start -5.98%)and JD.com (JD) -5.33%) They fell 2%, 5.9% and 5.3% respectively in Monday’s trading session.

The decline in China-focused consumer technology companies appears to have been driven by disappointing economic data from China today.

“Only” 4.7% growth

In the second quarter, China grew by 4.7%, which was significantly lower than the previous quarter’s 5.3% and analysts had expected a 5.1% growth rate. While 4.3% growth may seem strong, firstly, China is considered an “emerging” economy, and the government has set a 5% growth target, which is higher than the advanced economies. Secondly, China was hitting a very low bar with last year’s sluggish numbers, so this miss is very disappointing.

What’s worse for these companies is that much of the economic growth appears to be concentrated in industrial production and exports. Meanwhile, Chinese consumers still seem to be feeling sluggish. Retail sales growth in June was just 2%, lower than the 3.3% forecast, reflecting both a decline in tourism and restraint from Chinese consumers. Early reports of the annual 618 shopping festival in June also showed lower-than-expected growth.

This will likely mean disappointing second-quarter results for these three companies when they report in July or August.

Alibaba’s decline was the lowest today, but the sluggish mood in China’s stock market could further limit or delay planned IPOs in the cloud and logistics sectors, which were both canceled last year amid the market slump.

Like Alibaba, Baidu is investing in AI R&D, but its core business is still leveraged to the Chinese consumer: its core search engine relies on online marketing, and its other major businesses are controlling interests. iQiyi (NASDAQ: IQ)It is one of China’s top streaming services. Digital marketing grew slightly last quarter, but iQiyi reported a 5% decline.

Meanwhile, JD.com is heavily focused on consumer e-commerce, but particularly on high-value items such as electronics and home appliances, which are likely to see a decline in demand in a tough consumer environment, so it’s no surprise that JD’s stock is trending lower today.

Chinese tech stocks are cheap and they keep getting cheaper.

The big question is whether these Chinese tech stocks are a great value opportunity or a value trap. After all, many of these once high-flying tech leaders are now trading at single-digit multiples of earnings estimates. Some have been very bullish on Chinese stocks recently, including renowned value investor David Tepper and macro analysts. Goldman Sachs.

While one day can’t create a trend, it’s clear that China’s consumer economy continues to struggle to recover, with the country’s “zero-corona” lockdown, a slump in its property sector and increased regulation of big tech companies.

China has introduced interest rate cuts and measures to support the sluggish housing sector in recent months, but more is probably needed. Today’s economic data release seems to support that. The Chinese Politburo is likely to introduce new measures to stimulate growth later this month, so interested investors should pay attention.