Chinese ADRs surge 9% as traders rotate out of chipmakers

Chinese ADRs led by Alibaba surged Wednesday as traders rotated out of South Korean and Taiwanese chipmakers into beaten-down Chinese tech names.

The Nasdaq Golden Dragon China Index jumped 2% as Alibaba surged 9% and Baidu gained 5%, leading a broad rally in Chinese ADRs driven by a rotation out of Asian semiconductor stocks.

"The move is a classic rotation — traders are taking profits in crowded chip names and redeploying into Chinese tech at multiyear lows," said Sarah Lin, equity strategist at Edgen.

Alibaba closed at $98.14 on Tuesday and jumped to $106 in early trading, paring its year-to-date loss to 28%. Baidu rose 5% to $117.99, JD.com added 3% to $27.40, and PDD Holdings gained 2% to $84. The rally extended to Hong Kong-listed shares, with Alibaba's HK stock climbing as much as 12%, the biggest single-day gain since September. The KWEB China internet ETF rose 3.6% and the CQQQ China technology ETF added 1.7%.

The rotation comes ahead of Alibaba's fiscal second-quarter earnings on Aug. 17, which will test whether narrowing losses in its instant-commerce business can sustain the rally. A pre-earnings analyst briefing indicating that instant-commerce losses narrowed last quarter provided the stock-specific catalyst for the move.

The Rotation Trade Behind the Move

The broader catalyst was a sharp selloff in South Korean and Taiwanese chip stocks. The Kospi fell 5%, with Samsung shares dropping 6.9% even after the company issued record profit guidance, as investors worried that AI-related stocks had run too far. That pushed traders into Chinese internet names that have underperformed this year. The S&P 500 slipped 0.46% to 7,479, while the Dow fell 0.84% to 52,503.60, reflecting the broader rotation away from tech-heavy positions.

Alibaba's cloud business remains the structural bull case. Cloud Intelligence Group revenue grew 38% last quarter, and AI-related product revenue reached 30% of external cloud sales for the 11th consecutive quarter of triple-digit AI growth. Chief Executive Eddie Wu has made full-stack AI investment the company's strategic priority.

Baidu rode the same AI tailwind. Its AI Cloud Infra revenue rose 79% year over year in the first quarter, with GPU Cloud revenue up 184%. Reports that Chinese AI startups DeepSeek and Zhipu are developing their own chips added to the positive sentiment around the sector.

What the Bears Are Watching

The bear case has not disappeared. Chinese equities face persistent macro and regulatory headwinds, and the instant-commerce business remains structurally loss-making. Alibaba's fiscal fourth-quarter report showed adjusted EBITA dropping 84% to $740 million on a $123 million operating loss, even as revenue grew to $35.3 billion. Reddit sentiment on Alibaba scored between 12 and 25 over the past week, reflecting bearish positioning that some traders read as capitulation ahead of a bounce.

Alibaba's next earnings report on Aug. 17 will confirm or refute the narrowing-losses thesis. For the broader group, follow-through in Thursday's session will matter more than any single morning pop.

This article is for informational purposes only and does not constitute investment advice.