Insights

Why Shares of JD.com, Bilibili, and Kanzhun Are Falling Today

What happened

Shares of several Chinese stocks fell today as China reinstated some COVID-19 protocols that have dragged its economy down for the past few months.

Shares of the large e-commerce company JD.com (NASDAQ: JD) traded more than 7% lower as of 11:23 a.m. ET today. Shares of the video gaming company Bilibili (NASDAQ: BILI) traded more than 12.5% lower, and shares of the online recruitment platform Kanzhun (NASDAQ: BZ) traded nearly 13% lower.

So what

After a good week for Chinese stocks, they slipped today after parts of Shanghai and Beijing saw new COVID-19 protocols go into place after months of even more intense lockdowns and policies. Shanghai recently announced a fresh lockdown in the city’s Minhang district, which has more than 2 million people in it. Coronavirus cases have recently ticked up in Shanghai, and the Chinese government is increasing testing for residents. Beijing has closed entertainment businesses for the time being. 

“The business climate is not positive because despite the fact that the cities opened, there is still the problem of the zero-COVID policy,” Christophe Lauras, president of the French Chamber of Commerce in China, told Reuters. He added, “That is to say that every morning people don’t know if they’ll be locked down.”

The resurgence of COVID-19 in large cities in China has really hampered economic growth. The Chinese government had hoped to achieve 5.5% gross domestic product growth in 2022, but many banks have significantly cut their forecasts, largely as a result of coronavirus lockdowns.

In other news, Bilibili reported earnings this morning that disappointed investors. Adjusted earnings per share of -$0.63 slightly missed analyst estimates, while revenue in the quarter equivalent to $797.3 million beat estimates.

“In the face of the unexpected COVID-19 resurgence and lockdowns, the first quarter presented new challenges impacting businesses nationwide, particularly in Shanghai, where our headquarters is based,” Bilibili’s Chairman and CEO, Rui Chen, said in a statement.

Furthermore, Bilibili guided for revenue to come in between $720 million and $740 million, which implies a decline of roughly $57 million at the top end of the guide from the most recent quarter’s revenue.

Now what

Chinese stocks have been enjoying a nice week as the government seems to be easing up on a regulatory crackdown that has crushed many Chinese stocks trading on U.S. exchanges.

Earlier this week, media outlets reported that the Chinese government will likely end investigations into the large ride-hailing company Didi Global, the digital freight platform Full Truck Alliance, and Kanzhun. Along with these investigations, the Chinese government removed these apps from domestic Chinese app stores, which has made it incredibly difficult for these companies to add new users. That move may also be reversed soon.

Additionally, media outlets this morning wrote that the Chinese government may be considering reviving efforts to take the massive payments and technology Chinese company Ant Group public. The company tried to go public in 2020 but had to postpone the IPO due to concerns from regulators. The Chinese government has already denied those reports this morning, but you still never know.

Although COVID-19 is going to be an ongoing issue this year in China, I think multiple events have indicated that the Chinese government is easing its regulatory stance toward Chinese growth and tech stocks, which is a big positive. With many of these stocks still battered, it’s a good time to look for opportunities, with the understanding that things could remain volatile in the near term.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JD.com. The Motley Fool recommends Bilibili. The Motley Fool has a disclosure policy.

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