Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why China Tech Stocks Are Routed Despite Strong Earnings
Transcript
- Lucas: It is Friday, June 26th, 2026, and Chinese tech stocks are getting hammered. Alibaba, ticker b a b a, down 11 percent in five days. JD.com, ticker J-D, down 8.6 percent. Baidu, B-I-D-U, off 7 percent. The KWEB, which is the China internet ETF, is down 6.4 percent. Luna: And this is happening right after a pretty solid earnings season for most of them. That's the confusing part. Lucas: Exactly. Alibaba beat on revenue and cloud growth was strong. JD's margins actually improved. Baidu's ad revenue stabilized. So the sell-off isn't company-specific. It's macro. Luna: Macro meaning the global tech rout. South Korea's Kospi sank 8 percent today, SoftBank plunged 13 percent, SK Hynix down 10. It's a contagion from the U.S. sell-off, right? Lucas: Partially. There's definitely a risk-off mood globally — S&P 500 futures are down this morning. But I think there's a China-specific layer here. The yuan hit 6.77 per dollar this week, which is a new low for 2026. Luna: So a weaker yuan should theoretically help exporters, but Chinese tech companies are mostly domestic plays. Alibaba, JD, Baidu — they earn in yuan. So a weaker currency hurts their U.S. dollar-denominated stock value. Lucas: Right. And it's not just the translation effect. A weaker yuan signals that the People's Bank is comfortable with depreciation to offset tariffs. That implies the trade war is going to get worse before it gets better. Luna: Which makes investors nervous about consumer spending. If tariffs push up import costs and the yuan devalues, Chinese households lose purchasing power. And Alibaba's core commerce business is directly exposed to that. Lucas: Let's look at Alibaba specifically. Their cloud revenue grew 12 percent year-over-year in the last quarter, which is solid. But their China commerce retail revenue only grew 3 percent. That's the slowest since they restructured. Luna: And JD's story is similar. They're winning on logistics efficiency, but gross merchandise volume growth is in the single digits. The Chinese consumer is clearly tightening. Lucas: Then you add the trade war overhang. Every time there's a new tariff threat, these stocks sell off. And recently, the U.S. blacklisted more Chinese firms. Even if Alibaba isn't directly targeted, the sentiment drags everyone down. Luna: So what's the bull case? Is this just a temporary macro-driven dip, or is there something structurally wrong with these businesses? Lucas: The bull case is that valuations are getting cheap. Alibaba is trading at around 10 times forward earnings. That's lower than it was during the 2022 crackdown. JD is at 8 times. For companies that are still profitable and generate cash, that's not nothing. Luna: But value traps exist. Remember what happened to Chinese tech in 2021? Everyone said 'buy the dip' and then it dipped another 50 percent. Lucas: Fair point. The difference this time is that regulatory pressure has eased. Beijing is actually supportive of tech now — they want Alibaba and Tencent to hire more, invest more, boost the economy. The headwind is external: trade war, global rates, and the yuan. Luna: You know, it's funny — we spend so much time walking through the data behind stories like this, trying to make sense of the noise. And if you find that useful, honestly, it helps keep this show ad-free and independent. If you ever feel like supporting what we do, you can head to buy me a coffee dot com slash fexingo. No pressure, just a way to keep the conversation going. Lucas: Appreciate that. And speaking of the conversation — let's talk about what happens next. If the global sell-off continues, Chinese stocks could get dragged lower even if their earnings hold up. But if trade tensions ease, these stocks could rebound fast. Luna: Fast because they're so oversold. The FXI, the big China ETF, is down 4.9 percent in just five days. That's a lot of selling momentum. Lucas: And the MCHI, which tracks a broader basket of Chinese stocks, is down 3.8 percent. So the selling is broad-based, not just tech. Financials, consumer, industrials — all down. Luna: What about NIO? It's down 5.8 percent in five days. Is that just the tech rout, or is there something specific to EVs? Lucas: NIO has its own issues — delivery numbers have been underwhelming, and they're burning cash. But the broader EV sector in China is also facing EU tariff threats. So it's a double whammy. Luna: So for listeners trying to figure out what to do: is this a buying opportunity, or should they wait? Lucas: I tend to think that if you have a long time horizon, buying quality names like Alibaba or JD at these prices has historically worked out. But you have to be comfortable with volatility. The yuan could weaken further, trade war headlines could get worse. It's not for the faint of heart. Luna: And if you're looking at the KWEB or FXI, you're betting on the entire Chinese internet sector. That means you're betting that the macro picture improves — that consumer spending rebounds, that tariffs don't escalate further. Lucas: Exactly. And one more thing to watch: the U.S.-Iran peace deal that just happened. That's actually a positive for global risk appetite. Oil prices could come down, which reduces inflation pressure. That might help emerging markets, including China. Luna: But then there's the Hormuz strait issue — the UN agency paused a ship evacuation plan after a vessel attack. So geopolitics remain messy. Lucas: It's always something. But for Chinese tech, the core question is simple: are earnings going to grow next year? And right now, consensus estimates for Alibaba and JD show single-digit growth. That's not terrible, but it's not the 20 percent growth they used to deliver. Luna: So the market is basically pricing in no growth, or even a contraction. If they deliver any positive surprise, stocks could rally sharply. Lucas: That's the setup. High risk, high potential reward. But you need a strong stomach. We'll be watching the yuan and any trade headlines closely. Luna: And as always, we'll be here to walk through the numbers. That's it for today. Thanks for listening.