Chinese Equities Fight Back After Deflation Alarm: Investors Await Alibaba's Earnings

Chinese stocks trading in the U.S. market exhibited timid signs of a rebound, spurred by the release of overnight economic data that highlighted the presence of deflation in China.

Investors are mulling over the potential implications of the economy’s price drops, speculating that it might prompt the government to implement expansive economic measures, such as a more stimulative fiscal and monetary policy.

Stock Reactions

Shares of Alibaba Group Holdings Limited BABA witnessed a 1.6% surge on Wednesday. The e-commerce giant is poised to unveil its quarterly results ahead of tomorrow’s market opening.

Analysts project earnings per share of $2.01 for the quarter ending in June, alongside revenue of $30.99 billion.

The second-largest Chinese stock traded in the U.S. market, NetEase Inc. NTES, saw a 0.7% increase. JD.com experienced a 0.3% rise, while Trip.com Group Limited TCOM soared by 2.8%, reaching its highest levels since June 2021.

The electric vehicle manufacturers, Li Auto Inc. LI and NIO Inc. NIO, showcased mixed performances, with gains of 0.6% and losses of 1.7%, respectively. Meanwhile, Baidu, Inc. BIDU held steady.

China Enters Deflation Territory

Consumer inflation in China dipped into negative territory for the first time in over two years in July. Concurrently, producer inflation marked its tenth consecutive month of decline, deepening concerns about deflation.

China’s consumer prices posted a year-on-year dip of 0.3% in July 2023, the first drop since February 2021, following a stagnant June reading. Economists expected a slightly larger annual decline of 0.4%.

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Food prices exerted downward pressures, declining by 1.7% year-on-year after the prior month’s 2.3% increase. Conversely, non-food prices remained steady after a previous 0.6% decrease. Costs increased for clothing (1% compared to 0.9% in June), housing (0.1% compared to flat reading), health (1.2% compared to 1.1%), and education (2.4% compared to 1.5%). Transport prices continued to fall (-4.7% compared to -6.5%).

According to China’s statistical agency, the decline in the CPI is expected to be temporary, with inflation anticipated to gradually recover as the impact of a high base from the previous year fades.

Core consumer prices, excluding food and energy, saw a year-on-year increase of 0.8%, marking the highest surge since January, following a 0.4% rise in June.

July 2023 saw China’s producer prices plummet by 4.4% year-on-year, a worse outcome than the market’s prediction of a 4.1% decline. Producer prices fell for the tenth straight month. This followed a 5.4% drop in the previous month, marking the steepest decrease since December 2015.

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