Why PDD Holdings Shares Soared 40% in September

Actions of PDD Holdings (PDD -0.77%)the parent of Pinduoduo and Temu, rose in September as the Chinese stock market rose broadly in reaction to Beijing’s efforts to stimulate the economy.

China’s economy has yet to fully recover from the impact of the pandemic and the government’s strict and extensive “zero COVID” policies. Even though the restrictions were lifted, consumer spending has since been reduced. Additionally, Beijing’s previous crackdown on China’s tech sector has kept valuations down. As a result of all these actions, Chinese stocks have been struggling for years.

However, an interest rate cut by the People’s Bank of China caused investors to change their view on the world’s second largest economy last month and were particularly favorable to PDD Holdings , which was already surpassing the competitors.

As a result, stocks ended September up 40%, according to S&P Global Market Intelligence. That increase came largely towards the end of the month as China’s monetary policy became more accommodative and it took other steps to stimulate the economy.

PDD data by YCharts.

Is China back?

There wasn’t much company-specific news regarding PDD Holdings last month. In fact, the biggest news related to the e-commerce company was negative. On Sept. 13, the stock fell 2.4 percent in response to the White House’s initiation of actions that would crack down on a trade loophole that allowed Chinese retailers like Temu to ship cheap packages to the U.S. in a way that avoids tariffs.

Later in the month, stocks began to rise as Beijing unleashed significant steps to boost the Chinese economy.

First, on September 24, the People’s Bank of China made the biggest cut yet to its medium-term lending facility, dropping the rate from 2.3% to 2%. The central bank also said it was reducing the amount of reserves Chinese banks were required to hold in a bid to encourage lending.

Later in the week, the Politburo — the committee made up of China’s top political leaders — publicly backed the move, releasing a statement calling for strong stimulus and more measures to support consumer demand.

Image source: Getty Images.

What it means for PDD Holdings

Just like his peers Alibaba and JD.comPDD rose as investors believed these government efforts would lead to higher consumer spending. However, investors should be aware that Pinduoduo’s parent is growing much faster than its two peers and has outperformed those stocks.

PDD revenue rose 86% in the second quarter to $13.4 billion. It also reported a strong operating profit of $4.5 billion, showing that it is very profitable.

If China’s new stimulus efforts succeed, PDD growth could accelerate from here, sending inventory even higher.