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Why NetEase Shares Jumped Today

By Evan Niu, CFA – Aug 13, 2019 at 3:39PM

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Easing trade tensions are sending many Chinese stocks higher.

What happened

Shares of NetEase (NTES -1.50%) have jumped today, up by 10% as of 3 p.m. EDT, after the trade tensions between the U.S. and China slackened slightly. United States Trade Representative (USTR) Robert Lighthizer announced this morning that the Trump administration would delay imposing an additional 10% tariff on numerous categories of goods imported from China.

So what

While the tariffs don't directly affect NetEase, which makes video games and operates online gaming platforms, investors cheered the news, as many companies have been worried about higher costs during the all-important holiday shopping season.

Green stock chart going up

Image source: Getty Images.

U.S. tariffs are taxes imposed on U.S. importers, but China has retaliated with various tariffs that impact Chinese importers. Broadly speaking, the ongoing trade war represents a major threat to both of the world's two largest economies, which have started to show signs of slowing over the past two years.

Now what

Many of the product categories that will see delayed implementation include consumer electronics and other gadgets -- which are often used for gaming purposes -- so tech companies are expected to benefit more from the announcement.

NetEase management did note earlier this month that the company's dividend payouts may be affected by macroeconomic conditions. The company declared a dividend of $1.04 per American depositary share (ADS) for the second quarter, compared to $0.69 per ADS in the first quarter. Unlike U.S. companies that utilize a regular dividend policy, NetEase has an irregular dividend policy where it pays out 20% to 30% of after-tax profits per quarter. When asked about future payouts on the last earnings call, CFO Charles Yang said, "For the future quarters, [the dividend payout] all depends on how the macro economy and our outlook of the company's performance change."

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NetEase. The Motley Fool has a disclosure policy.

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