Daily Brief - China's Economic Crossroads

TLDR: The SSE Index, a barometer for the Chinese stock market, saw a noteworthy performance recently, climbing to 2,829.70, marking a 1.44% increase in a single day, contrasting its 12.88% decline over the past year.

China is presently confronting a trio of formidable economic adversities: persistent deflationary pressures, a slump in exports, and an intensifying real estate dilemma. The International Monetary Fund (IMF) has cast a somewhat somber projection, anticipating economic growth to decelerate to 4.6% this year from 5.2% in 2023, amidst an aging population and climbing unemployment rates.

Alibaba Group's Q3 earnings did little to assuage investor concerns. Despite efforts to bolster investor confidence through a $25 billion share repurchase program, Alibaba's net income plummeted by 77% year over year, primarily due to mark-to-market losses on equity investments.

This downturn is exacerbated by Alibaba's core online retail platforms, Taobao and Tmall, which reported a mere 2% increase in revenue year over year, signaling weak consumer spending and economic challenges in China.

The sluggish growth in Alibaba's e-commerce operations can also be attributed to fierce competition from PDD, which recently surpassed Alibaba in market value.

Alibaba's stock remains under pressure, underscoring investor skepticism despite seemingly attractive value-investing metrics. The persistent decline in Alibaba's stock value, unaffected by the substantial share buyback program, highlights the enduring challenges and the perception of Alibaba as a potential value trap amidst ongoing economic and competitive pressures in China.

Market Movers: When Alibaba misses earnings?

Here is the historical performance of Alibaba's peers after previous earnings misses of -$0.02, sorted by their 1-month performance:

1. RAKUTEN INC (4755): 2.90%
2. eBay (ebay): 1.07%
3. Meituan (3690): 0.99%
4. Amazon (amzn): 0.59%
5. MercadoLibre (meli): -2.77%
6. Baidu (bidu): -3.34%
7. Tencent Music Entertainment Group ADR (tme): -4.47%
8. JD.com (jd): -5.08%
9. Shopify (shop): -7.20%
10. Pinduoduo (pdd): -12.99%

Earnings Update: Expedia Group reports tonight

In the last quarter, Expedia achieved revenues of $3.93 billion, marking an 8.6% year-on-year increase and surpassing analyst expectations. For this quarter, analysts anticipate a 9.9% year-on-year revenue growth, totaling $2.88 billion, with adjusted earnings expected at $1.70 per share.

This represents a slowdown from last year's 14.9% revenue increase in the same quarter. Analysts have largely maintained their forecasts over the last thirty days, indicating expectations for the company to continue its current trajectory.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.

Asset Spotlight: PDD's 1M Realized Volatility at a recent low

In the 9 past occurrences when Pinduoduo's 1M Realized Volatility reached a recent low, analysis from Toggle indicated a pattern of a median upward movement in the stock price over the following six months.

PDD could rise in price relative to other Chinese e-commerce stocks due to its unique social shopping model, which encourages group buying at lower prices, potentially attracting a larger user base. Innovations in agriculture and rural e-commerce could also set PDD apart by tapping into less penetrated markets.