Beijing’s support should relieve DP stock investors

  • Investing in overseas e-commerce has gotten a little easier as the Chinese government signals it’s ready to support the market.
  • Pinduoduo offers an intriguing entry point after a steep decline.
  • Investors should consider a starting position and be prepared to add if the stock price drops.

Based in Shanghai, China Pinduo-duo (NASDAQ:PDD) provides an online shopping platform that is meant to be fun. On the other hand, owning PDD shares over the past year hasn’t been much fun at all.

Investing in foreign markets is not always easy. This requires additional homework and due diligence, as the risks and potential rewards can be high.

As we will see, the PDD stock provided a harsh lesson in what can go wrong with international investments. A number of contributing factors put pressure on Pinduoduo and the company’s stakeholders.

However, opportunistic traders can take advantage of the low stock price. Moreover, a report from Beijing could, if all goes well, give a good boost to Pinduoduo shareholders this year.

What’s going on with PDD Stock?

The outbreak of the Covid-19 pandemic put e-commerce, as well as the connecting power of social media, in the spotlight in early 2020. This benefited online shopping platforms in general, and Pinduoduo specifically.

Against this backdrop, PDD stock tried to break $200, but failed and started to fall sharply. The shares are currently trading in the upper $40s.

Some of the factors that contributed to this decline were not necessarily Pinduoduo’s fault. These factors include Beijing’s crackdown on tech companies over cybersecurity concerns and the US government’s flagging of Chinese companies listed on US stock exchanges. He is also feeling the effects of the problems with the Chinese real estate market and the Russian invasion of Ukraine.

These factors have generally weighed on Chinese equities, so DP stocks appear to have suffered excessive collateral damage. It’s a risky proposition, no doubt. But investors should consider the upside potential, as Pinduoduo’s mobile market 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 through their smartphones: furniture, clothes, cosmetics, shoes, bags and even food and drink.

Meanwhile, Pinduoduo users can enjoy games and live broadcasts. Instead of being a chore, the experience is interactive and enjoyable.

Good news from Beijing

Yet, even though Pinduoduo’s app is unique among e-commerce platforms, it will be difficult for the company to thrive if the Chinese government restricts its operations.

Just recently, however, there is an indication that China may actually be offering support for its tech companies and stocks. According to reports, the Financial Stability and Development Committee of China’s State Council is urging concrete action to support the national economy.

This is already good news, but it is getting even better for Pinduoduo and its shareholders.

The aforementioned Chinese authorities are said to have said that Chinese and American regulators have maintained good communication and made positive progress regarding the regulation of Chinese companies listed in the United States.

Furthermore, it was reported that the two sides are working on a concrete cooperation plan. The Chinese government will continue to support various companies as they seek listings in overseas markets.

the Shanghai Composite Index increased by 3.48% on the day of these announcements. Clearly, investors in Chinese companies welcome this news from Beijing.

What you can do now with PDD Stock

It’s too early to tell if the Chinese government will ease its crackdowns on the tech sector. So, there is always a risk associated with PDD stock. Nevertheless, the upside potential is there, and an early position in the stock isn’t a bad idea.

Just be prepared for positive and negative developments in China and consider adding a few more Pinduoduo shares if the price moves lower.

As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

David Moadel has delivered compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) InvestorPlace.com. He is also the Chief Analyst and Market Researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.