The outlook for Chinese stocks, including Alibaba and PDD, remains bleak as concerns over an economic slowdown in the country persist. Even a recent downgrade to the outlook for Chinese government credit by ratings firm Moody’s Investors Service has failed to brighten the mood.

Moody's downgraded the outlook for Chinese government credit to negative from stable on Tuesday, while reaffirming China's A1 long-term local and foreign-currency issuer and senior unsecured ratings.

According to Moody's, there are significant downside risks to China's fiscal, economic, and institutional strength. The ratings firm cited mounting evidence that the public sector will provide financial support to stressed local governments and state-owned enterprises.

In addition, Moody's highlighted concerns over structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector. These trends underscore the increasing risks associated with policy effectiveness.

The negative outlook from Moody's is far from a vote of confidence in China's economy. As a result, Asian markets saw a heavy impact on Tuesday, despite some positive signs of economic expansion in November's services data.

Hong Kong's Hang Seng Index closed at its lowest level in over a year, with shares of widely held Chinese tech stocks taking a hit. Pre-market trading on Tuesday showed a 1.2% drop in shares of Alibaba, a 2.4% slide in PDD shares, and a 1.8% drop in shares.

All three companies heavily rely on the Chinese consumer through their e-commerce businesses. While PDD, known for its discount-oriented approach, has performed relatively well in the current environment, its parent company, Pinduoduo and Temu, is not immune to pressure.

Overall, Chinese stocks continue to face challenges as concerns over the economy persist. The downgrade by Moody's has further weighed on market sentiment, impacting major tech stocks in particular.

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