Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why China Tech Stocks Are Splitting From the Yuan
Transcript
- Lucas: So the yuan has been sitting around 6.79 per dollar, basically flat over the past week, and the trade-weighted dollar index is actually ticking down slightly. By the usual playbook, that should be a mild tailwind for Chinese equities. Luna: But that is not what we are seeing at all. KWEB is down nearly 4% in five days, FXI down 2.5%. Lucas: Right. The old correlation — yuan strengthens or stabilizes, Chinese stocks rally — has just snapped. And this week's data makes it really stark. Look at individual names: JD.com, down 8% in a week. Pinduoduo, down almost 12%. Alibaba off 5%. Luna: Those are brutal moves for a week where the currency is not doing anything scary. What changed? Lucas: Well, part of it is that the yuan stability is really a function of the People's Bank of China leaning against depreciation. They've been setting the daily fixing stronger than expectations — it's a managed calm, not a vote of confidence. Luna: So the PBOC is holding the line on the currency, but that doesn't translate to support for stocks. It's like two different conversations happening. Lucas: Exactly. The stock market is pricing in something the currency market is not — or rather, the currency market is being actively managed, while equities are reacting to fundamentals and sentiment. This week, the big story is regulatory noise coming back. Luna: I saw that. Beijing issued new draft rules on data security for internet platforms — it's not a full crackdown like 2021, but it's a reminder that the regulatory environment is still uncertain. Lucas: Yeah, and markets hate uncertainty more than they hate bad news. The draft covers how platforms can use consumer data for targeted advertising and AI training. For companies like Alibaba and JD, that's core to their business models. Luna: And Pinduoduo's 12% drop — that one stands out even relative to peers. Lucas: Part of that is specific to them. They've been pushing into low-margin categories like fresh groceries and community group buying, which compresses margins. Plus, there's concern that new data rules could hit their recommendation algorithm, which is the engine of their engagement. Luna: So the yuan is stable, but the stocks are selling off because of sector-specific risks. That break in correlation — is it new, or has this happened before? Lucas: It happened briefly in 2021 during the peak of the regulatory crackdown, and again in late 2023 when deflation fears hit. But this time feels different because the macro backdrop is also shifting. The Fed's Kashkari came out today saying inflation fight takes priority — that means higher for longer rates, which puts pressure on high-growth, high-valuation tech stocks globally. Luna: And Chinese tech stocks, even after the drawdowns, still trade at a premium to many other emerging market tech names on a price to earnings basis. Lucas: Right. So you have a triple whammy: regulatory overhang, global rate pressure, and a yuan that is artificially stable. The PBOC wants to avoid a sharp depreciation because that would spook foreign investors and accelerate capital outflows. But the stock market is already voting with its feet. Luna: Let's talk about JD specifically — 8% in a week. That seems outsized even for a volatile name. Lucas: JD has been caught in a price war with Pinduoduo and Douyin for market share in general merchandise. Their last quarterly report showed revenue growth of about 7% year-over-year, but operating margins shrank by 50 basis points. Markets hate that combination — growing but getting less profitable. Luna: So the market is repricing JD for lower margins, not for a downturn in China's consumer. Lucas: Exactly. And that's an important distinction. China consumer data has been mixed but not collapsing. Retail sales grew 4.3% in April — not great, but not a recession. The issue is competitive intensity, not macro weakness. Luna: That also explains why NIO is actually up nearly 3% this week — it's a different sector, different dynamics. Lucas: Electric vehicles have their own narrative: trade tensions with Europe are easing slightly after some tariff negotiations, and NIO's delivery numbers stabilized. But that's a separate story from the internet platform trade. Luna: So if an investor is looking at the China internet space right now, what is the key question they should be asking? Lucas: I think the first question is: is this regulatory draft a one-off or the start of a new cycle? If it's just a clarification of existing rules, the selloff might be overdone. If it signals a broader tightening, then there's more downside. Luna: And the second question would be around earnings visibility. Lucas: Right. For companies like JD and Pinduoduo, can they maintain market share without destroying margins? That's a hard question right now. Alibaba has more leeway because of its cloud business, but its core commerce is also under pressure. Luna: It feels like the market is treating China tech as a stock-picker's market again, not a beta trade on the yuan. Lucas: Yeah, that correlation break forces you to do bottom-up work. You can't just buy FXI and hope the currency carries you. You have to ask which companies have pricing power, which have regulatory moats, which can withstand the rate environment. Luna: That is a much harder way to invest, but probably more honest. Lucas: Absolutely. And speaking of honest — we have kept this show ad-free from the start, and listener support is what makes that possible. If this kind of breakdown is useful to you, if walking through the economy with us has made something click, the simplest way to help is buy me a coffee dot com slash fexingo. It's a one-time thing, no subscription, just whatever feels right. Luna: Yeah, it really does help us keep the lights on and the analysis independent. Even a few coffees add up. Lucas: So back to the split between yuan and stocks. The key takeaway this week is that the PBOC can manage the currency, but they cannot manage investor sentiment. Until we see either a clear regulatory resolution or a catalyst like strong earnings from a bellwether, this divergence could persist. Luna: And for anyone trading this, that means watching the yuan less and watching the regulatory calendar more. Lucas: Exactly. The old playbook is broken. That's the story of May 2026 for China tech.