Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why China Tech Stocks Are Diverging in 2026
Transcript
- Lucas: So Pinduoduo lost over ten percent last week. That's not a bad week — that's a single week. And meanwhile, Baidu gained nearly six percent. Same country, same regulatory environment, same macro headwinds. But two completely different stories. Luna: Yeah, that divergence is striking. And it's not just those two. Alibaba down four and a half percent, JD down five and a half, NIO up almost eight. It's like each stock is following its own playbook. Lucas: Right. And that's actually the key takeaway for this episode. The old narrative that 'China tech moves as one block' — that's dead. If you're looking at emerging market ETFs like EEM or VWO, you're getting a blended picture that masks what's really going on underneath. And for investors, that's both a risk and an opportunity. Luna: Let's start with Pinduoduo. Ten percent in a week — what happened? Lucas: Part of it is earnings reaction. Pinduoduo reported results that showed slowing revenue growth, and the market punished them. But there's a deeper story here — the days of breakneck growth for discount e-commerce in China are fading. Consumers are shifting, competition is intensifying, and Pinduoduo's core model is under pressure. And given that it trades at a relatively high multiple for a Chinese stock, any miss gets magnified. Luna: And then you have Baidu going the other way. Up six percent. What's driving that? Lucas: Baidu is the AI story in China. They have their own large language model, Ernie, and they're aggressively integrating it into search, cloud, and autonomous driving. The market is pricing in future AI monetisation. And Baidu's valuation is still reasonable relative to that potential — it's not a pure hype stock. So when sentiment turns positive on AI, Baidu catches the bid. Luna: So the market is basically sorting winners and losers based on which companies have a credible AI story and which don't. Lucas: Exactly. And that's where the divergence gets really interesting. NIO up almost eight percent — that's partly about EV demand, but also about its ai powered autonomous driving features. Meanwhile, Alibaba and JD — both e-commerce giants — are down because their growth is maturing and they haven't convinced the market they have a transformative AI product yet. Alibaba has Cloud and some AI initiatives, but it's not as pure a play as Baidu. Luna: And this is happening against a broader backdrop where China tech ETFs like KWEB and MCHI are down slightly for the week. So the index hides the stories underneath. Lucas: Right. And that's the important lesson for anyone investing in emerging markets. The days of just buying a broad-based ETF and assuming it captures the growth story — those days are over. You need to understand the individual drivers within each country, and within each sector. China alone is not a single trade anymore. Luna: Well, and speaking of the backdrop — the strong dollar and trade tensions are still very much in play. The trade-weighted dollar index is at 119.3, still elevated. And the yuan is at 6.79 per dollar, which is relatively stable but still under pressure. Lucas: That's actually a crucial point. A strong dollar historically hurts emerging market stocks, especially those with dollar-denominated debt. But within China tech, the impact varies. Companies with large domestic revenue bases, like Baidu and NIO, are less sensitive to currency moves. But Alibaba and Pinduoduo, which have more exposure to cross-border trade or dollar-denominated costs, feel the pinch more. So the strong dollar is another factor amplifying the divergence. Luna: And then there's the regulatory angle. China's government has been sending mixed signals — cracking down on some sectors while encouraging AI and EVs. Lucas: Yeah, the regulatory pendulum has swung from the 'common prosperity' crackdowns of 2021 to a more targeted approach. Now, the government is explicitly supporting AI, semiconductors, and new energy vehicles. That's why Baidu and NIO get a regulatory tailwind, while pure e-commerce platforms face more scrutiny over data security and market dominance. So regulation is not a blanket risk anymore — it's stock-specific. Luna: So for someone looking at emerging markets today, what's the right approach? Should they be picking individual stocks rather than ETFs? Lucas: I think the answer depends on your risk tolerance and time horizon. If you want broad exposure, ETFs are still fine — but you need to be aware that you're getting a blended result. If you have the ability to do research, stock picking in China can be very rewarding right now because the dispersion is so high. But it's also risky because these stocks can swing wildly. Luna: And the broader EM picture is also showing divergence. Look at South Korea's ETF, EWY, up over thirteen percent in a week. That's massive. Driven by memory chip and AI demand. Lucas: Right. South Korea is riding the AI wave through Samsung and SK Hynix. Meanwhile, Brazil's EWZ is down, Mexico's EWW is flat. So even at the country level, there's no uniform EM story. The theme of this year is really 'dispersion' — within countries, within sectors, within asset classes. Luna: Quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes possible. Lucas: Yeah, we don't run ads, we don't have sponsors. It's just listener support that keeps this going. And we're grateful for every single person who contributes. Luna: So back to China — what about the broader macro picture? The US trade deficit widened to over sixty billion in March. How does that factor in? Lucas: The trade deficit is a reflection of strong US demand, but it also feeds into the political narrative around trade imbalances. That could lead to more tariffs or trade restrictions, which would disproportionately affect Chinese tech companies that rely on exports or have us facing businesses. So it's another layer of uncertainty. Luna: And the current account deficit narrowed, which is interesting. That suggests capital is flowing into the US, which strengthens the dollar. So the cycle reinforces itself. Lucas: Exactly. And for emerging markets, that means continued pressure. But again, it's not uniform. Countries with strong domestic demand and less reliance on dollar financing — like India, for example — can weather it better. India's ETF INDA is up slightly, and its economy is growing at a solid pace. Luna: So the big picture takeaway: 2026 is a stock-picker's market, especially in emerging markets. The era of 'buy everything and wait' is over. Lucas: I think that's right. And the data this week underscores that. Pinduoduo down ten percent, Baidu up six, NIO up eight — within the same country. If you're not paying attention to individual company fundamentals, you're going to get whipsawed. Luna: So what's the one thing you'd tell a listener who's looking at China tech right now? Lucas: I'd say: don't treat China as a single bet. Look at each company's exposure to AI, to regulation, to the domestic consumer, and to global trade. And be prepared for volatility. The opportunity is in the dispersion, but so is the risk. Luna: Good note to end on. Thanks for listening, and we'll be back tomorrow with another episode.