Why Shares of Alibaba, JD.Com, and Tencent Are Falling Today | The Motley Fool

What happened

Many Chinese stocks fell today, as investors digested new economic data in China. There has also been renewed focus on potential incoming trade restrictions being considered by the Biden administration.

Parts of a large Chinese tech conglomerate Ali Baba (BOTTOM -0.08%) traded about 2.6% lower at 12:30 pm ET today. Meanwhile, the shares of another large Chinese tech conglomerate JD.Com (JD 0.93%) traded more than 5% lower, while shares of the big Chinese multimedia company Tencent Holdings (CZECH -0.61%) was down about 3.7%.

What now?

New data released yesterday confirmed fears among analysts and economists that China’s economic growth has slowed this year and the rebound from last year has lost momentum.

Human hand draws a downward red line.

Image source: Getty Images.

Gross domestic product (GDP) in the country grew by 0.8% in the second quarter of the year from the first quarter and increased by 6.3% year on year. Year-over-year growth was actually a nice improvement from the first quarter, which grew 4.5% year over year but fell short of the 7.3% consensus estimate.

China’s economy has struggled in many areas including youth unemployment, factory activity, and the country’s ailing property market, which is a major contributor to growth. The Chinese government has begun to cut interest rates and introduce stimulus measures, but many worry that it won’t be enough.

“We expect more stimulus in the coming weeks to strengthen infrastructure, stabilize property sales, and support big-ticket consumption,” said Kathy Li of UBS Global Wealth Management, according to Barrons. “But policy support is likely to be just enough to get GDP growth on track to achieve the annual target of ‘around 5%’, rather than a jump in growth.”

China’s economy is a large part of the global economy, and many worry that weakness in the country could spill over into other economies, as well, especially in Europe and the critical German economy.

In other news, potential new rules by the Biden Administration that would restrict the sale of certain chips to Chinese companies were also brought back into the limelight today. Major chipmakers and stakeholders have asked the Biden Administration to “avoid further restrictions” on concerns that it could save a key source of revenue from major US chipmakers.

However, it seems that the Biden administration is somewhat committed to the changes, which are intended to prevent China from using US technology in a way that compromises US national security.

“We have been intentional about getting this right, including through extensive public comment on the regulations, and through intensive coordination with allies and partners, the Hill, industry, and other stakeholders,” a spokesperson for the US National Security Council said in a statement.

What now

The bulk of today’s move can be attributed to diminished optimism about the Chinese economy, which is a key driver of Chinese stocks. Investors have been worried for months that the economic recovery from last year may not be as strong as they thought, although perhaps recent stimulus measures will help the cause.

Despite the uncertainty about the economy, I think big Chinese companies like Alibaba, JD.Com, and Tencent have solid long-term potential. All three have established a very strong foothold in the country and their industries of vision and should benefit through the use of artificial intelligence.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions and recommends JD.com and Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

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