Why China’s PDD Holdings, Baidu and JD.com Shares Soared This Week

Shares of Chinese consumer stocks PDD Holdings (PDD 6.40%), Baidu (BIDU 3.44%)and JD.com (JD 3.11%) rose strongly this week, up 29.5%, 18.9% and 33.1%, respectively, through Thursday trading, according to data from S&P Global Market Intelligence.

Chinese stocks have traded very cheap of late as the country has weathered a wave of headwinds, including a government crackdown on tech companies, a bursting housing bubble and weak consumer sentiment after long “zero-Covid” lockdowns of the country.

But this week, China’s central bank unveiled a series of new stimulus measures, while the Politburo also made strong statements pointing to continued stimulation of the Chinese economy.

This week’s big announcements

On Tuesday, China’s central bank announced more stimulus measures, including lowering several different interest rates while lowering bank reserve requirements and the amount of money consumers have to pay for housing.

In response, Chinese stocks rose, even as some expressed doubts about the effectiveness of simple interest rate cuts. After all, if consumers are still concerned about spending and don’t take on more leverage, lower rates and bank reserves wouldn’t have much of an effect.

But on Thursday, China’s Politburo released its monthly meeting statement, which called for strong fiscal stimulus to support household consumption. In response, China’s consumer and technology stocks rallied again, leading to huge gains this week.

According to Reuters, the Politburo does not usually discuss economic issues at its September meeting. So this announcement may signal the urgency from party leaders that more needs to be done. More measures could include infrastructure projects and increasing the “whitelist” of unfinished housing projects that the government has flagged as beneficiaries of potential government bailouts or loans. In addition, the Politburo has even said it will support low- and middle-income households, perhaps directly, as well as pro-birth policies, among other measures.

More government involvement in the housing sector is likely needed, as about 70% of Chinese consumer savings are in the form of real estate investments. And support for low- and middle-income households as well as childbirth could be a key tenet of a comprehensive package. China, like other advanced economies, has seen a sharp slowdown in its birth rate, which some economists have flagged as a risk of further economic stagnation.

China’s government has only taken half-measures in pieces during the economic downturn of the past two years, but the interest rate cuts and messages this week all point to a more comprehensive and coordinated stimulus package. So all the consumer names like e-commerce giants PDD Holdings and JD.com, as well as search giant Baidu, flocked to the news.

In addition to the good macroeconomic news, Baidu presented at an artificial intelligence (AI) event this week. Baidu is one of the Chinese tech giants developing its own large language models for generative AI, so its presentation at the Yunzhi AI Summit this week would have sparked further optimism.

At the conference, Baidu unveiled the latest Ernie AI models on its Qianfan Foundation 3.0 model platform. According to Baidu’s executive vice president, who presented at the conference, Ernie can tune up to 30,000 large models and handle 700,000 queries daily.

Known risks, but also the opportunity for high earnings

The risks of Chinese stocks are well known and generally center around a heavy-handed government. In addition, there are risks of conflict between the US and China, potentially over Taiwan.

However, this week China’s government appears to have done a 180 and gone from business foe to friend in a significant way. This at least removes a big risk for the immediate future.

With these stocks trading so cheap — PDD, Baidu, JD.com each trade between 13 and 13.5 times trailing earnings, even after this week’s big rally — more could be in the books .