Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why Chinese Tech Stocks Are Selling Off Despite Strong Earnings
Transcript
- Lucas: It has been a rough week for Chinese tech stocks. The iShares China Large-Cap ETF, ticker F-X-I, is down 5 percent over the last five trading days. Alibaba fell nearly 8 percent. JD.com dropped more than 8 percent. The sell-off isn't isolated to China — it's part of a broader global tech rout — but the magnitude here is worth unpacking. Luna: And this is on June 23, 2026. We're not talking about a slow bleed. These are sharp moves. What's driving it? Lucas: The immediate catalyst is the U.S. semiconductor sell-off. Micron led the Nasdaq down 2 percent today on what CNBC is calling a global chip rout. When U.S. tech gets hit, Chinese tech often follows — partly because sentiment is global, partly because many of these companies are in the same supply chains. But there's a China-specific layer here too. Luna: The consumer slowdown story, right? We talked a few episodes ago about how retail sales tumbled in May. That's still hanging over these names. Lucas: Exactly. Alibaba and JD are e-commerce platforms. If Chinese consumers are pulling back, that directly hits their revenue. And the data from May was worse than expected — retail sales growth slowed to around 2 percent year-over-year, well below consensus. The market is pricing in that weakness. Luna: So the sell-off makes sense on the demand side. But what about the currency piece? The yuan is at 6.77 per dollar, which is a multiyear low. Does that help or hurt these stocks? Lucas: It's a double-edged sword. A weaker yuan makes Chinese exports cheaper, which helps companies that sell globally — think about the EV makers or solar panel exporters. But for domestic-focused tech platforms like Alibaba and JD, a weak yuan signals capital outflows and investor anxiety about the broader economy. It also makes U.S.-listed Chinese stocks less attractive to foreign investors because the dollar returns get eroded when you convert back. Luna: And the dollar itself is incredibly strong. The trade-weighted dollar index hit 120.4. That's a 20-year high territory. Emerging markets tend to suffer when the dollar strengthens like this. Lucas: Right. And China is the largest emerging market. So you have this triple whammy: global tech sentiment souring, domestic consumption weakening, and a strong dollar pulling capital out of EM. The KWEB ETF, which tracks Chinese internet stocks, is down 5.5 percent this week. That's a broad-based move. Luna: I want to zoom in on one name: Baidu. It's only down 2.3 percent this week, which is outperforming the group. Is there a specific reason? Lucas: Baidu has been repositioning itself as an AI company, and that narrative is still getting some benefit of the doubt. They have their Ernie bot, they're investing heavily in autonomous driving with Apollo. So while the ad revenue might be pressured by the consumer slowdown, the AI story provides a floor. But even Baidu isn't immune if the macro gets worse. Luna: What about NIO? It's actually up 0.9 percent this week. That's the outlier. Lucas: NIO is interesting because it's tied to the EV theme, which has its own momentum. The Chinese government is still subsidizing EV purchases in many cities, and exports are growing. But also, NIO had already been beaten down so much — it's trading around 5 dollars — that maybe the bad news was already priced in. One week doesn't make a trend. Luna: So if someone is looking at this sell-off and thinking about buying the dip, what should they consider? Lucas: First, you have to ask whether the consumer slowdown is cyclical or structural. If it's cyclical — meaning it recovers as the economy rebalances — then Alibaba at 102 dollars might be a value. But if it's structural — if Chinese consumers are permanently more cautious after the property crisis and the youth unemployment problem — then these companies face a longer-term growth challenge. Luna: Right, and we haven't even talked about regulation. The crackdown on tech from 2020 to 2022 never fully went away. It just became more predictable. Lucas: That's the third layer. The regulatory environment is still tight on data security, antitrust, and gaming. Tencent and Alibaba are still under the shadow of potential new rules. So any dip-buying thesis has to account for that uncertainty. Luna: And then there's the trade war angle. With the yuan weakening, the U.S. may accuse China of currency manipulation, which could lead to more tariffs. That would hurt the export-oriented parts of the economy too. Lucas: Honestly, if walking through the economy with us has made something click, that's the link — buy me a coffee dot com slash fexingo. It's the smallest possible ask for the biggest possible signal that this is worth doing. Luna: Yeah, listener support keeps this ad-free and focused on the numbers. Totally optional, but deeply appreciated. Lucas: Back to the sell-off: is there a contrarian case? Some investors argue that Chinese tech is priced for catastrophe, and that earnings are actually holding up better than expected. Alibaba's cloud business is growing, JD still has strong logistics margins. The market might be overreacting. Luna: But the chart says otherwise. The FXI is at 32.81, which is near its 52-week lows. The market is screaming caution. Lucas: Right. And until we see a catalyst — like meaningful stimulus from Beijing, or a turn in the consumer data — the path of least resistance is lower. The People's Bank of China has been easing, but it's incremental. They cut the reserve requirement ratio by 25 basis points last month, and they've lowered some lending rates, but it hasn't been enough to reverse sentiment. Luna: So what should our listeners watch for in the next few weeks to gauge whether this is a buying opportunity or a trap? Lucas: Two things. First, the yuan. If it stabilizes or strengthens, that would signal that capital outflows are easing. Second, the July Politburo meeting — that's when Beijing typically signals any major policy shifts. If they announce a large fiscal package or direct support for consumption, that could be a turning point. Luna: Short term, though, the global chip rout is the dominant factor. And that's not a China story — that's a semiconductor cycle story. Lucas: Exactly. And those cycles can last months. So for now, patience is probably the right strategy. Let the sell-off run its course, watch the yuan, and wait for policy clarity. The fundamentals of Chinese tech aren't broken, but the timing is uncertain. Luna: Well said. That's all the time we have. We'll keep tracking these moves and bring you the latest. Lucas: Thanks for listening. Until next time.