The Chinese economy, after enduring a period of economic turbulence characterized by decelerating retail spending growth, falling real estate prices, and a slump in industrial productivity, appears to be showing signs of recovery. This comes on the heels of stimulus measures initiated by China's central bank, including an unexpected interest rate cut and reduction in banks' reserve requirements to encourage lending.
Despite a slow start to the year with retail growth crawling at a mere 2.5% in July, official data indicates a rebound in August, with retail sales growth bouncing back to 4.6%, significantly above the anticipated 3%. Similarly, industrial productivity increased by 4.5%, up from July's slower pace of 3.7%. Consumer prices also rebounded last month following alarming deflation in July.
UBS Group's head of China strategy, James Wang, suggests that there are indicators that the equity market may have reached its lowest point and reasons for optimism are emerging. Amid these developments, Alibaba (NYSE:BABA) Group Holding and Trip.com are gaining attention.
Alibaba Group Holding has managed to increase its revenue by 14% year over year in the quarter ending June despite challenging economic conditions. Although analysts predict a slowdown in the growth rate for the latter half of this year, projected full-year revenue growth of 9% is still noteworthy. Alibaba shares are currently trading at just over eight times next year's expected per-share profits.
Alibaba's new CEO, Eddie Wu, brings a fresh vision to the company, emphasizing user-centricity and AI-driven strategies. Wu's plan to promote younger employees signals his intention to cater to a digitally-native audience.
Meanwhile, online travel agent Trip.com appears well-positioned to benefit from a potential rebound in China's consumer economy. Despite initial instability following China's exit from stringent COVID-19 lockdowns, the nation's travel industry has remained resilient.
State-owned China Railway recently reported record-breaking ticket sales, and domestic hotel bookings for the upcoming Golden Week holiday are surpassing pre-pandemic levels. A survey commissioned by travel consulting firm IPK indicates that 80% of Chinese residents plan to travel abroad within the next year, more than in previous years.
Boeing (NYSE:BA) has also raised its 20-year outlook for China's demand for new passenger jets, citing that domestic air traffic has surpassed pre-pandemic levels and international traffic is steadily recovering. Analysts expect Trip.com's top line to continue its rebound through this year and expand by another 17% in the next year. However, despite this resilience, Trip.com shares remain significantly below analysts' consensus target.
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