China's price wars plunge stocks as tepid demand haunts corporate earnings

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MSCI China gauge already down more than 4% so far this year. It capped a third straight annual decline in 2023. “The bigger picture is that the weak demand is leading to a deflationary environment, which particularly bodes ill for businesses that cannot achieve higher volumes with lower prices," said Daisy Li, a fund manager at EFG Asset Management HK Ltd.

The EV industry has been among the worst hit by intense competition as growth slows, with Chinese makers following the lead of Tesla Inc. in lowering prices to boost sales. BYD and local peers including Xpeng Inc.

and Li Auto Inc. have shed billions of dollars in market value in the past few months. “Retail prices are falling fast," Morgan Stanley analysts wrote in their 2024 outlook report for the Chinese EV sector.

“While local brands, in general, have fared better than luxury and foreign brands in terms of widening discounts, we expect discounts to further widen into 1Q24 on the back of seasonality effects." Even China’s vaunted internet giants have been impacted, with Alibaba and JD.com Inc. seeing their stock prices tumble as they wage a fierce battle for market share. The price war has made US-listed PDD Holdings Inc., operator of discount site Temu, one of the rare bright spots in China’s e-commerce industry.

Many economy and market observers are hoping for interest-rate cuts and government spending to help prevent the nation from entering a deflationary spiral. Fund managers say the next catalyst they are watching is pricing and sales data around Chinese New Year in February, which will offer more clues on consumer confidence. The next few weeks may also be key for policy action, given Chinese leaders will soon gear up for the National People’s Congress.