Please ensure Javascript is enabled for purposes of website accessibility

Why New Oriental Education, TAL Education, and Daqo New Energy Stocks All Dropped Today

By Rich Smith - Updated Mar 10, 2021 at 4:17PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Chinese stimulus rumors scare the market.

What happened

Wednesday was not the best day to own Chinese stocks, as rumors of a change in stimulus policy sent shares of education companies New Oriental Education & Technology Group (EDU -0.56%) and TAL Education Group (TAL -5.91%), down 14% and 11.6%, respectively.

Shares of Daqo New Energy (DQ 3.29%), a Chinese producer of materials for solar panels, weren't particularly healthy either, down 10.9%.

Map of China under a magnifying glass

Image source: Getty Images.

So what

What rumors are we talking about? In a headline long on shock value, but short on specifics, Benzinga.com reported today that investors are worried that China may reduce economic stimulus this year.  

According to the BBC, analysts who follow China have been predicting that its gross domestic product (GDP) this year could grow as much as 8% to 9% as its economy rebounds from the depressing effects of the coronavirus.

Problem is, China itself doesn't seem to think that is likely. At last week's National People's Congress, Premier Li Keqiang set a target for only 6% GDP growth in 2021. And the theory is that for growth to be that slow, China would have to reduce the amount of monetary stimulus it pumps into the economy to below the level that analysts had anticipated.

Now what

What might cause the Chinese government to do that? Consider that last year, to combat the coronavirus, the Chinese central government sent $1.3 trillion in stimulus to local governments. Problem is, tax revenue is down in China and government deficits are up -- to the point that the central government may not be able to maintain such high levels of stimulus indefinitely.

And if it cuts back, that could be bad news for economic growth, and for parents' ability to spend on their children's education by buying courses at New Oriental and TAL.

This wouldn't be good news for Daqo, either, with its business model largely tied to subsidies for solar power in China. And adding to Daqo's problems, this morning analysts at Roth Capital lowered their price target for its stock. Roth cut its target only to $97, still 22% above where Daqo trades today. But that's less than half the potential profit promised by Roth's previous price target of $115, giving Daqo investors yet another reason to be nervous today.  

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

New Oriental Education & Technology Group Inc. Stock Quote
New Oriental Education & Technology Group Inc.
EDU
$12.48 (-0.56%) $0.07
TAL Education Group Stock Quote
TAL Education Group
TAL
$4.14 (-5.91%) $0.26
Daqo New Energy Corp. Stock Quote
Daqo New Energy Corp.
DQ
$47.46 (3.29%) $1.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.