Shares of PDD Holdings (PDD -8.20%) were falling today as the parent of Pinduoduo and Temu was swept up in the broader fallout after a Hong Kong court ordered liquidation of China Evergrande Group, which was once China’s biggest real estate developer.
As a result, the stock was down 7.6% as of 12:20 p.m. ET on Monday.
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China risk rears its head again
U.S.-listed stocks were down broadly with the iShares MSCI China ETF (MCHI -1.81%) down 1.9% at the same time.
Though the event doesn’t seem to have a direct impact on PDD Holdings, it highlights yet another troubled area of the Chinese economy and shows that a recovery in the world’s No. 2 economy does not seem to be in the offing.
PDD has been the rare Chinese tech stock to deliver strong returns in recent years as the company continues its rapid growth despite the broader challenges in China. However, investors might be taking the opportunity to collect profits on PDD, fearful that continued economic weakness in China could weigh on the stock.
What’s next for PDD?
The gains of PDD’s stock have come as the company continues to take market share from Alibaba and JD.com with its popular social-commerce model as deals on Pinduoduo are driven by group buying. Its discount e-commerce site Temu has also taken off in international markets, giving it exposure outside of China, though it’s unclear if Temu is profitable.
Thus far, PDD has demonstrated the effectiveness of its business model and growth strategy, but all growth stories eventually slow down, and troubles in the Chinese economy are likely to impact the business sooner rather than later, especially as news like the Evergrande liquidation comes out.
Investors seem to be reacting to that reality today.
Jeremy Bowman has positions in JD.com. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
