Trouble Brews For Alibaba As Satellite Data Suggest Continued Demand Weakness
According to satellite data, China's retail activity flatlined in August, with e-commerce demand especially weak, suggesting consumer caution due to the ongoing Covid Zero policy and elevated unemployment, Bloomberg reports.
Activity at Chinese e-commerce companies' distribution centers was even lower than during 2020, based on the movement of trucks around such areas.
The data suggest that weak earnings by e-commerce juggernauts like Alibaba Group Holding Ltd (NYSE: BABA) could continue as households cut back on spending.
Alibaba posted its first-ever drop in quarterly revenue for the three months ended in June.
That weakness also extended to brick-and-mortar retailers, with the change in the number of cars in shopping mall parking lots in August well below the same month in 2021.
Retail sales fell from March through May as the shutdowns in Shanghai and dozens of other cities confined activities.
The lockdowns and the broader economic slowdown have had an adverse impact on Chinese households' outlook on the future and undermined their willingness to spend.
China's manufacturing sector contracted with a 20% decline in intercity truck flows in August, Bloomberg wrote.
With economists predicting a bleak consumption picture, Beijing strived to use government spending on infrastructure to revive growth.
However, data suggests that the infrastructure push has failed to offset the hit to construction activity from a deep slump in China's property market.
Analysts say the Chinese internet stocks are making the most out of the policy stimulus, with easing regulations helping improve earnings visibility from 2H22 onwards amid the cyclical economic uptrend.
Mizuho re-rated Alibaba as he expects GMV growth to improve as demand for discretionary products picks up during Singles' Day promotions with the reopening of the supply chain.
Price Action: BABA shares traded higher by 1.77% at $95.50 in the premarket on the last check Wednesday.
Photo via Wikimedia Commons
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