In what has been a tough year so far for Chinese stocks, e-commerce titans Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) popped higher on Friday, the latter winning bragging rights and rising 6% versus BABA at 2%. The enthusiasm aligns with China’s Singles Day event, an initiative sparked from an anti-Valentine’s Day movement that catapulted into a national barometer for consumer sentiment. However, myriad headwinds pose anxieties among market observers.
Let’s dive right into the numbers. According to CNN Business, analysts expect the world’s largest shopping experience to generate 1 trillion yuan or $140.8 billion in sales for the first time. Notably, Singles Day usually eclipses Black Friday and Cyber Monday sales combined. Last year, Singles Day posted a sales haul of 952.3 billion yuan ($134.2 billion).
That’s the good news for Chinese stocks. The bad news is that the sales uptick against 2021 would only represent roughly a 5% lift. Keep in mind that in 2021, when Singles Day generated a sales increase of 13%, Bain & Company assessed the rise as “the smallest advance ever.”
Further, the research firm noted in its recent survey that “34% of shoppers planned to spend less during Singles Day this year than in 2021 and just 24% planned to increase their spending,” according to a Barron’s write-up. Thus, Chinese stocks face incredible pressure even taking into account recent upside enthusiasm.
Chinese Stocks at a Fork in the Road
While not taking anything away from the conspicuous Friday rally among e-commerce-related Chinese stocks, they have catching up to do. For the year, BABA is down 41% while rival JD slipped over 28%. As eToro strategist Ben Laidler stated in a research note, spending will likely slow this year. How much it slows will represent an important gauge of Chinese consumer sentiment.
Fundamentally, Chinese stocks received a possible lifeline. Recently, the Wall Street Journal reported that Beijing will start easing some of its zero-Covid policies which devastated the economy. Largely, these relaxed measures will focus on shortening isolation periods.
Still, the news might not be the panacea it implies. Essentially, the development may be too little, too late, according to Rory Green, TS Lombard’s chief China economist. Green stated that shifting Covid policies are “by no means enough for economic activity to improve.”
Barron’s added:
“Capital Economics Senior China Economist Julian Evans-Pritchard writes that though a move away from the harsh zero-Covid restrictions would boost the economy over the medium-term, the immediate disruptions of a reopening could exceed the cost of keeping the policy in place—especially if vaccination rates for the elderly haven’t risen substantially ahead of a reopening.”
Ultimately, then, while Chinese stocks may continue to rise based on near-term data, sustaining momentum represents another issue entirely. Therefore, many analysts imply the current juncture may allow investors to sell into strength, not buy into the dips.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
