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Why Chinese Tech Stocks Were Soaring Today

By Jeremy Bowman – Updated Jul 6, 2020 at 4:19PM

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A bullish signal from Beijing sent Chinese stocks higher today.

What happened

Shares of Chinese stocks climbed broadly as the Shanghai Composite posted its best gain in five years, rising 5.8% in today's session. A number of factors converged to drive Chinese stocks higher today, the biggest of which appeared to be an editorial in a state-owned newspaper that said that a healthy bull market was particularly important to China's economic recovery following the pandemic.  

Individual investors have also been buying into stocks in China, much like retail investors have in the U.S., and China's economic data has improved significantly since its coronavirus shutdown in February. Furthermore, China has handled the pandemic much better than the U.S., where cases are surging, giving the world's No. 2 economy an advantage in the recovery.

Among the U.S.-listed Chinese tech stocks moving higher today as of 2:35 p.m. EDT were Weibo (WB), which was up 17.9%, Qutoutlao (QTT), which had gained 16.5%, Momo (MOMO), which had increased 14.1%, HUYA (HUYA), which was up 11.8%, and Niu Technologies (NIU), which was 14.9% higher.

A globe of the Earth rests on a spread of Chinese and American currency.

Image source: Getty Images.

So what

Chinese stocks came into this week with momentum after a purchasing-managers index showed an expansion in activity in June with a reading of 50.9, better than expectations at 50.4.

Meanwhile, investors may be looking ahead to second-quarter earnings, which are just around the corner. Chinese stocks are likely to post results showing them bouncing back strongly from the pandemic-riddled first-quarter. That's in contrast to U.S. stocks, which experienced the worst of the crisis in the second quarter; domestic results could be even worse than expected. Meanwhile, Chinese stocks are also generally cheaper than their U.S. counterparts, as last year's trade war weighed on valuations in the Communist country.

Finally, this group of Chinese tech stocks may also be benefiting from news that Sina -- which owns a controlling stake in Weibo, the microblogging site often called China's Twitter -- received a buyout offer from a group led by CEO Charles Chao at a 12% premium to Thursday's closing price. The news seems to back up the idea that Chinese tech stocks are undervalued, especially with the country emerging form the pandemic, and after 58.com and Bitauto were also taken private recently -- a sign there could be more such buyouts.

Now what

With the front-page editorial pushing for a bull market, investors seem to believe that Beijing will take steps to stimulate the economy and accelerate the recovery, as it may see an opportunity to gain advantage over the U.S. due to the slower recovery stateside. The move also comes after a drawn-out trade war between the two countries that yielded little in the way of progress and the Trump administration's attack against U.S.-listed Chinese companies, which has led to companies like JD.com and Netease to list in Hong Kong, helping them raise cash.

Considering their lower valuations, China's successful suppression of COVID-19, and the prospect of government stimulus, Chinese stocks look primed to outperform their American counterparts over the coming months. Keep an eye on second-quarter earnings from the group above as that could provide another tailwind.

 

Jeremy Bowman owns shares of JD.com. The Motley Fool owns shares of and recommends JD.com, NetEase, and Twitter. The Motley Fool recommends HUYA Inc., Momo, Sina, and Weibo. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Weibo Stock Quote
Weibo
WB
Hello Group Stock Quote
Hello Group
MOMO
HUYA Inc. Stock Quote
HUYA Inc.
HUYA
QUTOUTIAO INC Stock Quote
QUTOUTIAO INC
QTT
NIU Technologies Stock Quote
NIU Technologies
NIU
NetEase Stock Quote
NetEase
NTES
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$50.59 (-1.37%) $0.70
JD.com Stock Quote
JD.com
JD

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