Record-Long Singles' Day Approaches: A Catalyst for China's E-Commerce Giants?

Following a series of stimulus measures introduced by the Chinese government at the end of September, Chinese e-commerce stocks saw a rapid surge and subsequent pullback.

The recent roller-coaster performance of e-commerce stocks mirrors the fluctuating investor enthusiasm for Chinese equities. Disappointing stimulus measures have quickly cooled the fervor for these stocks.

This year's Singles' Day shopping event kicks off earlier than ever, with its longest duration yet. According to several e-commerce platforms' schedules, the event will stretch from mid-October to around November 13.

Analysts suggest that e-commerce platforms have pushed pre-sale activities at least 10 days earlier than previous years. By starting early and extending the event period, they aim to lock in consumers and stimulate spending to some extent.

This year's Singles' Day features several notable changes. Firstly, platforms are emphasizing quality and service, focusing on balancing the interests of merchants and consumers to help businesses move away from price wars and boost confidence.

Secondly, platform subsidies are at an all-time high, coupled with numerous consumer subsidies rolled out by various government levels. Alibaba announced that Taobao and Tmall Group will offer consumer incentives worth 30 billion yuan (approximately $4.25 billion) during this year's Singles' Day shopping festival, including coupons and red envelopes.

Thirdly, platform barriers are gradually diminishing. Taobao has officially integrated with WeChat Pay, allowing WeChat users to purchase Taobao goods directly within chat windows. JD.com has formally integrated with Alipay and Cainiao logistics.

China's e-commerce sector has faced challenges over the past three years, including waning consumer spending, heightened competition, and regulatory pressures. JD and Alibaba shares have dropped 60% from their peaks, while Pinduoduo's stock is down 40% from its early 2021 highs.

Despite these challenges, JD.com has posted positive returns in November over the past three years, and Pinduoduo has recorded over 40% gains in November for the past two years. This trend may be linked to investor sentiment buoyed by shopping festivals and the release of third-quarter earnings reports.

This year's September-quarter earnings will be released after the Singles' Day shopping event, with JD.com expected to report on Nov. 13, Alibaba on Nov. 14, and Pinduoduo on Nov. 26.

Nomura recently noted that China's late-September stimulus package, aimed at stabilizing the real estate market and boosting consumer demand, could improve consumer sentiment. Nomura expects China's e-commerce sector to potentially outperform the broader market in the short term. Nomura’s top short-term picks are JD.com, Pinduoduo, and Alibaba, all rated as "buy."

In an Oct. 7 research note, Macquarie stated there is "more upside from here" for the China internet sector, noting that valuations still trade at only half of Q1 2023 levels despite "materially better fundamentals." The firm aligns the valuation year to 2025, considering China's stimulative policy steps and prudent corporate strategies, which enhance earnings visibility for the sector.

E-commerce is a pivotal factor in the reassessment of Chinese internet stocks and broader U.S.-listed Chinese equities. As it mirrors broader economic trends in China, tracking performance during Singles' Day and third-quarter earnings could offer valuable insights for investing in Chinese stocks.

China's three e-commerce giants differ in customer base and core competencies, leading to varying benefits amid efforts to stimulate consumption.

In the past month, investment banks including Barclays, Bank of America, Morgan Stanley, JPMorgan, Macquarie, and Citigroup have raised their target prices for Alibaba.

On Wednesday, Barclays increased its target from $107 to $137, maintaining an "overweight" rating. Analysts noted that Alibaba's significant shareholder returns are expected to continue driving the stock higher, with Q3 results likely to meet expectations.

Citigroup raised its target from $116 to $136, citing recent monetary and fiscal policy stimulus in China that could enhance the wealth effect, boosting consumer sentiment and spending. Citi analyst Alicia Yap anticipates increased investment and marketing by Alibaba ahead of Singles Day to drive gross merchandise volume and consumer spending.

In a late September report, JPMorgan stated that while the "big three" China e-commerce stocks – Alibaba, PDD, and JD – trade at similar forward P/E multiples, Alibaba is "the most attractive" among them.

This week, Barclays and JPMorgan raised JD's target price from $40 to $50. Barclays analysts noted JD's Q3 revenue growth likely accelerated, returning to mid-single-digit year-over-year growth, driven by strong appliance sales after slow demand in July and August.

On Tuesday, China’s Huatai Securities raised JD's target to $49.7, noting that short-term "trade-in" initiatives could directly support H2 2024 revenue and growth. Long-term, effective fiscal policies stabilizing real estate demand could spur demand recovery for appliances, closely linked to the property sector.

Despite a challenging retail landscape in China, PDD has sustained robust performance due to its compelling value proposition, with its international platform Temu experiencing rapid growth. The stock's decline from its highs is less severe compared to Alibaba and JD.com.

On Monday, Macquarie upgraded PDD’s rating to "outperform" from "neutral," citing a more stable market environment but cautioned that heightened competition in low-price segments could result in market share erosion.