How to navigate potential investment opportunities in China’s e-commerce sector With Investing.com
Investing.com — After recent policy changes and macroeconomic headwinds, Morgan Stanley analysts have launched a Bull-Bear Framework to help investors better navigate potential investment opportunities in China’s e-commerce sector.
According to the Wall Street firm, China’s overall economic situation remains mixed, especially with the People’s Bank of China (PBoC) and Politburo meetings showing a shift in focus from local debt settlement to direct consumption stimulus.
Therefore, analysts agree that the “3D Journey” of debt, demographics, and inflation remains difficult, especially as the means to stimulate consumption remains underpowered.
Uncertainty in the e-commerce sector is expected to continue in the next 1-2 years. While consumer sentiment may take some time to recover, policies such as the home stock exchange program, which is observed in September and October, are showing pockets of strength in the market.
“Given the low visibility about the pace of recovery in consumption in 2025 and 2026, we believe that the Bull-Bear Framework can help investors to better look at investment opportunities in the sector,” said analysts led by Eddy Wang in the letter.
The Bull-Case Scenario: In this scenario, Morgan Stanley predicts that China’s e-commerce sector could grow by 14% YoY in 2025 and 13% YoY in 2026. This is based on the assumption of strong incentives related to government spending, including the expansion of trade. – in policy.
Under this favorable environment, the company ranks PDD Holdings Inc DRC (NASDAQ: ) as a top pick due to its stronger than peer GMV (Gross Merchandise Volume) growth and market share gains. JD (NASDAQ: ) and Alibaba (NYSE:) is expected to also benefit.
Bear-Case Scenario: In the most conservative bear scenario, the e-commerce sector is forecast to grow by 5% YoY in 2025 and 4% YoY in 2026, assuming weak consumption without further impetus.
Intense competition among e-commerce players can also drag down margins. PDD remains the top choice of Morgan Stanley analysts in this scenario “as we believe its ‘value for money’ position is highly resilient in a weak consumption environment,” they noted.
Key indicators to determine when to turn good/bad in China e-commerce: Morgan Stanley advises investors to keep a close eye on three key indicators to gauge the sector’s performance: 1) wage growth and unemployment rates, 2) housing prices, and 3) government policy support.
In its basic form, the Wall Street firm projects the Chinese government will provide a fiscal stimulus of Rmb 2 trillion in 2024 and Rmb 2-3 trillion in 2025, leading to GDP growth of 3.9 percent in 2025 and 4.1% in 2026.
E-commerce sales are expected to decline to 9% in 2025 and 7% in 2026, as consumer sentiment shows modest improvement, while competition remains fierce. Under this view, the order preferred by Morgan Stanley is PDD, followed by JD, and then Alibaba.
