Pinduoduo Soars in China’s Zero-Covid Policy

The Chinese e-commerce company Pinduoduo (PDD), which sells everything from groceries to beauty products, has emerged as a big winner during the resurgence of the pandemic in China.  As a result, Pinduoduo has surged 43% over the past month and is the top performer in the Nasdaq Golden Dragon China Index, a modified market capitalization index comprised of 20 stocks publicly traded in the U.S.

Pinduoduo has rallied 167% from its 3-year low in March, beating its competitors, including Alibaba Group Holding (BABA) and JD.com (JD).  The outperformance of Pinduoduo highlights just how price-sensitive Chinese consumers have become under the country’s Covid Zero policies.  Moreover, Pegasus Fund Managers said, “the outperformance of Pinduoduo might continue as long as Covid Zero is in force.”

China’s insistence on maintaining its strict Covid Zero policies when a Covid outbreak emerges has benefited Pinduuduo as consumers are forced to buy goods online during these pandemic lockdowns.  On Thursday, Chengdu, a city of 21 million people, extended a weeklong lockdown in most downturn areas.  About 65 million people across China are now subject to restrictions in their mobility due to pandemic lockdowns. 

Founded in 2015, Pinduoduo has become one of China’s largest e-commerce platforms by active users, even briefly surpassing rival Alibaba Group Holding in 2020.  Part of Pinduoduo’s appeal is its ability to offer group buying options, an increasingly popular trend in China whereby networks of friends or neighbors purchase products together to bet deeper discounts. Pinduoduo is also looking for new growth avenues and is in the process of entering the North American market as a way to shift from its sputtering domestic economy.

Bloomberg data show analysts have boosted Pinduoduo’s earnings consensus estimate by 40% over the last month, among the biggest increases in the 1,379-member MSCI Emerging Markets Index.  However, there are concerns that consumer demand in China is waning.  China’s retail sales for July grew at about half the pace expected, underscoring flagging consumer confidence.  Some analysts are concerned if the trend holds; eventually, all goods, including consumer staples and other lower-margin products, could suffer in the long run.

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