Why Chinese stocks ranging from JD.com to Baozun to XPeng soared today
In what can only be described as a sweeping and indiscriminate rebound, most U.S.-listed Chinese stocks rallied significantly today, rebounding from a losing streak that took many to new ones. 52-week low on Wednesday.
Brokerage company Futu Fund (NASDAQ: FUTU) led the way on Thursday with a 13% gain, followed closely by the video game company bilibili (NASDAQ: BILI) and Baozun (NASDAQ: BZUN). Pinduo (NASDAQ: PDD) and XPeng (NYSE: XPEV) saw their shares jump 10%, while NetEase (NASDAQ: NTES) gained 9%. E-commerce outfit JD.com (NASDAQ: JD) ended the session with a more modest rise of 7%, although its larger market capitalization translates into larger overall net gains for more investors.
The push was sparked by a combination of bargain hunting and China’s increasingly accommodating regulatory stance on its economy.
After months of repression that cast a shadow of doubt over the future of most major Chinese companies, a ray of sunshine is emerging. Bloomberg announced Wednesday evening that the country’s government would cut tax rates as part of an effort to spur economic growth. Notably, Chinese officials are acting deliberately to encourage a rebound in consumerism within its middle class, which has become an increasingly important part of the country’s economy.
This targeted stimulus has proven particularly bullish for consumer-oriented companies like the aforementioned e-commerce companies JD and Pinduoduo, as well as the retail brokerage name Futu. However, most of the names were lifted, with the Nasdaq Golden Dragon China Index recording one of its best single-day gains in years.
Granted, most of those stocks were ripe for a rebound anyway. Shares of Hong Kong’s tech sector collectively hit an all-time high on Wednesday after months of weakness resulting from a government effort to curb firms in the country that were beginning to slip out of regulators’ control.
Yet at least some credit for the rebound needs to be given where it is due. UBS Kelvin Tay of Global Wealth Management suggested on Wednesday evening that Chinese stocks appeared to be grossly undervalued. China International Capital Corporation analyst Li Qiusuo echoed the sentiment, pointing out the idea that as the rest of the world’s stocks struggle against their own new headwinds, Chinese stocks become relatively even more convincing. Both bullish arguments are reinforced by the fact that despite losing ground for most of the year, China International Capital Corporation claims that a record amount of foreign capital was injected into Chinese stocks in 2021. .
The scenario certainly looks bullish for bottom fishermen. Essentially, a handful of analysts are indicating that the sales effort has already reached an unsustainable extreme. And the scale of today’s gains sends an unspoken message that many of those battered names may be ready to rally for good again.
Don’t read too much of Thursday’s action, however.
Although we are close to or even at a very low level, in most cases today’s big bounces haven’t even offset losses suffered by some Chinese stocks in the first three trading days of the week. The aforementioned Baozun, for example, is still in the red for the week, and all of the aforementioned actions remain in the red for the month. Additionally, while broadly bullish, UBS’s Tay still recognizes that with no clear bullish catalysts on the horizon, Chinese stocks could stagnate for months before genuinely entering a more prolonged uptrend.
In other words, keep a cool head here. The picture remains more than a little cloudy, and mere rhetoric alone will not move the rally forward. Imposing new restrictive regulations is not necessarily contrary to China’s stimulus efforts.
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