Shares of PDD Holdings (NASDAQ: PDD), the parent of Pinduoduo and Temu, soared in September as the Chinese stock market rose broadly in reaction to Beijing's efforts to stimulate the economy.
China's economy has yet to fully recover from the impacts of the pandemic and the government's strict and extended "zero COVID" policies. Even though restrictions have been lifted, consumer spending has been subdued since then. Additionally, Beijing's earlier crackdown on China's tech sector had kept valuations muted. As a result of all that, Chinese stocks have been struggling for years.
However, an interest rate cut from the People's Bank of China had investors changing their tune with regard to the world's second-largest economy last month, and they were especially favorable to PDD Holdings, which was already outperforming competitors.
As a result, the stock finished September up 40%, according to S&P Global Market Intelligence. That surge largely came toward the end of the month as China's monetary policy became more accommodative and it took other steps to stimulate the economy.
Is China back?
There wasn't much company-specific news regarding PDD Holdings last month. In fact, the biggest news item connected to the e-commerce company was negative. On Sept. 13, the stock fell 2.4% in response to the White House initiating actions that would crack down on a trade loophole that has allowed Chinese retailers like Temu to ship cheap packages to the U.S. in a way that dodges tariffs.
Later in the month, the stock began surging as Beijing unleashed significant steps to stimulate the Chinese economy.
First, on Sept. 24, the People's Bank of China made the biggest cut ever to its medium-term loan facility, lowering the rate from 2.3% to 2%. The central bank also said it was cutting the amount of reserves that Chinese banks were required to keep in an attempt to encourage lending.
Later in the week, the Politburo -- the committee comprised of China's most senior political leaders -- publicly supported that move, releasing a statement that called for strong stimulus and more moves to support consumer demand.
Image source: Getty Images.
What it means for PDD Holdings
Like its peers Alibaba and JD.com, PDD soared because investors believed that these government efforts would lead to greater consumer spending. However, investors should be aware that Pinduoduo's parent is growing much faster than those two peers, and has outperformed those stocks.
PDD's revenue jumped 86% in the second quarter to $13.4 billion. It also reported a strong operating profit of $4.5 billion, showing it's highly profitable.
If China's new stimulus efforts succeed, PDD's growth could accelerate from here, sending the stock even higher.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
