Beijing’s Backing Should Bring Relief to Pinduoduo Investors
- Overseas e-commerce investing just got a little bit easier as China’s government signals readiness to support the market.
- Pinduoduo offers an intriguing entry point after a steep drawdown.
- Investors should consider a starter position and be prepared to add if the share price drops.
Shanghai, China-based Pinduoduo (NASDAQ:PDD) provides an e-commerce shopping platform that’s meant to be fun. On the other hand, holding PDD stock during the past year hasn’t been much fun at all.
Investing in overseas markets isn’t always easy. It requires extra homework and due diligence, since the risks and potential rewards can be elevated.
As we’ll see, PDD stock has provided a harsh lesson in what can go wrong with international investments. A number of contributing factors have put pressure on Pinduoduo and the company’s stakeholders.
However, opportunistic traders can take advantage of the low share price. Besides, a report from Beijing could, if everything works out, give Pinduoduo’s shareholders a nice boost this year.
| PDD | Pinduoduo | $46.84 |
What’s Happening with PDD Stock?
The onset of the Covid-19 pandemic brought e-commerce, along with the connective power of social networking, into the limelight in early 2020. This benefited e-shopping platforms in general, and Pinduoduo in particular.
Amid that backdrop, PDD stock took a shot at breaking $200, but failed and started to decline sharply. The shares are currently trading in the upper $40s.
Some of the contributing factors to this decline weren’t necessarily Pinduoduo’s fault. These factors include Beijing cracking down on technology companies over cybersecurity concerns and the U.S. government flagging Chinese businesses listed on American stock exchanges. It’s also feeling the effects from issues with China’s real estate market and the Russian invasion of Ukraine.
Those factors weighed on Chinese stocks generally, so PDD stock appears to have suffered excessive collateral damage. It’s a risky proposition, no doubt. But investors ought to consider the potential upside, as Pinduoduo’s mobile marketplace is truly unique.
What Pinduoduo offers is a fun and interactive all-in-one e-commerce experience. Consumers can get all kinds of items on its platform though their smartphones: furniture, apparel, cosmetics, shoes, bags, and even food and beverages.
Meanwhile, Pinduoduo’s users can enjoy games and livestreams. Instead of being a chore, the experience is interactive and enjoyable.
Good News from Beijing
Still, even if Pinduoduo’s app is unique among e-commerce platforms, it will be difficult for the company to thrive if China’s government restricts its business.
Just recently, however, there’s an indication that China may actually offer support for its tech businesses and stocks. Reportedly, the financial stability and development committee of China’s State Council is urging concrete actions to bolster the nation’s economy.
That’s already good news, but it gets even better for Pinduoduo and its shareholders.
The aforementioned Chinese authorities reportedly stated that Chinese and U.S. regulatory bodies have maintained good communication and made positive progress regarding regulations for U.S.-listed Chinese firms.
Furthermore, it was stated the two sides are working on a concrete cooperation plan. China’s government will continue to support various enterprises as they seek listings in overseas markets.
The Shanghai Composite Index rose 3.48% on the day of these announcements. Clearly, investors in Chinese businesses welcome this news from Beijing.
What You Can Do Now With PDD Stock
It’s too early to know whether China’s government will ease up on its tech business clamp-downs. So, there’s still risk involved with PDD stock. Nevertheless, the upside potential is there, and a starter position in the stock isn’t a terrible idea.
Just be prepared for positive and negative developments from China, and consider adding a few more Pinduoduo shares if the price fluctuates to the downside.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
