Things haven’t been calm for Chinese stocks lately.

As the Shanghai Composite and Hong Kong’s Hang Seng Index each dropped more than 4% from Sept. 16 through Wednesday’s close, their peers listed in the U.S. also weren’t able to escape losses.



E-commerce giant Alibaba (ticker: BABA) saw its American Depositary Receipts tumble 7.5%, while online retail rivals JD.com (JD) and Pinduoduo (PDD) suffered even more in the same period—with a 10.2% and 9.2% loss, respectively. Beyond e-commerce, China’s other Internet giants Tencent Music Entertainment (TME) and Baidu (BIDU) also slumped 6.5% and 7.2%, respectively.

Headwinds are plenty, including the dragging trade war with the U.S., escalating violence in Hong Kong, a weakening domestic economy, and concerns over the increasing oversight of the private sector by the Chinese government. On Sept. 23, the eastern Chinese technology hub of Hangzhou said it will assign government representatives to work within 100 local companies, and Alibaba was on the list. Alibaba stock fell more than 3% on the day even as the company shared solid growth data at its Investor Day event in Hangzhou.

Investors were also rattled last week by news reports that the Trump administration was considering restricting U.S. investment in the Chinese market, a move that would mark the spillover of the trade war to the financial market. Although such headlines were later denied by the U.S. Treasury Department, sentiment remained cautious and the Chinese stocks haven’t returned to their previous levels.


“We believe the negative overhang on U.S.-listed China ADRs will likely persist for a while,’’ and it could also weigh on Hong Kong-listed technology giants including Tencent (0700.HK), Meituan (3690.HK), and others, wrote Citibank analyst Alicia Yap in a note last week.



She suggests that one possible response by China’s companies with ADRs would be consideration of dual listings in Hong Kong, and then eventually listing back in China once the country’s domestic exchanges “resolve the technical issues and regulatory authorities endorse this approach.”

But listing in Hong Kong might not be the smartest move at this moment, considering the continuing protests against Beijing’s ruling that has descended into widespread violence and left the city’s business environment uncertain. Already, Alibaba has postponed its plan for a $15 billion second listing in Hong Kong.

Despite the macro uncertainties, Wall Street still likes Alibaba a lot for its strong growth prospects, with 98% of analysts rating the stock a Buy or equivalent. The consensus target price for the next 12 months is 33% higher than the stock’s Tuesday close.

The fourth quarter is historically the best three months for Alibaba sales due to the annual Singles Day sales event that falls on Nov. 11 every year. Hans Chung, an analyst at KeyBanc Capital Markets, expects Alibaba to maintain traction on its online retail marketplaces this year despite fierce competition from other e-commerce platforms.


The company’s approach to advance market share in less-developed areas—rather than the saturated big cities—would give it an edge, says Chung, given Alibaba’s well-established infrastructure that includes payment tools and its logistics network. This advantage is more resilient than price wars and irrational subsidies, says Chung.

Alibaba’s flagship e-commerce marketplace Taobao has seen its gross merchandise volume grow over 50% in the first half of 2019 from the year-ago period, and was stronger than last year’s growth of about 30%.

The accelerated growth was mainly driven by sales from content- and influencer-based short video platforms such as Douyin, says Chung. He estimates that Taobao’s gross merchandise volume from Douyin will reach close to 100 billion yuan this year and bring Alibaba an additional five billion yuan in revenue. Chung rates Alibaba as Overweight and expects the stock to rise from $165.15 as of Tuesday’s close to $245 in the next 12 months.

Chung is also bullish on Alibaba’s competitor Pinduoduo. Driven by strong momentum in agriculture products, parcel volume on Pinduoduo’s platforms is expected to increase 3% in the third quarter from the previous three months to reach 234 billion yuan to 241 billion yuan. Chung expects Pinduoduo to acquire more customers in the third quarter, but also warned that things might get more challenging in the fourth quarter due to Alibaba’s sales event. He rates Pinduoduo as Overweight and expects the stock to rise from $32.75 as of Tuesday’s close to $40 in the next 12 months.


Write to Evie Liu at evie.liu@barrons.com