Gloom casts a shadow over Chinese stocks like Alibaba and PDD as concerns about an economic slowdown in the second-largest global economy persist. The recent downgrade of the outlook for Chinese government credit by ratings firm Moody’s Investors Service has done little to alleviate these worries.
On Tuesday, Moody’s downgraded the outlook for Chinese government credit from stable to negative, while affirming China’s A1 long-term local and foreign-currency issuer and senior unsecured ratings.
Moody’s stated that there are significant downside risks to China’s fiscal, economic, and institutional strength, primarily due to mounting evidence that the public sector will need to provide financial support to both stressed local governments and state-owned enterprises.
The ratings firm further explained, "The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector. These trends underscore the escalating risks associated with policy effectiveness."
Moody’s action does not inspire confidence in China’s economy and had a substantial impact on Asian trading on Tuesday, despite some positive indicators in services data that showed economic expansion in November.
Hong Kong’s Hang Seng Index closed at its lowest level in over a year, with shares of widely-held Chinese tech stocks plummeting. In premarket trading on Tuesday, Alibaba's shares fell 1.2%, while PDD experienced a slide of 2.4% and JD.com dropped 1.8%.
All three companies are exposed to the health of the Chinese consumer through their e-commerce businesses. Although discount-driven PDD has recently demonstrated relative strength in the current environment, the parent company of Pinduoduo and Temu does not appear to be exempt from the pressures.
