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Why Chinese Stocks Ranging From to Baozun to XPeng Soared Today

By James Brumley – Dec 30, 2021 at 6:03PM

Key Points

  • China is moving to stimulate its challenged economic growth.
  • Multiple analysts suggest months of selling of Chinese stocks may have finally and fully run its course.
  • Thursday's rally, however, may merely reflect high volatility rather than mark a major change of heart for the market's view of China's best-known stocks.

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It would have been more difficult to find a Chinese stock not up by double-digits on Thursday.

What happened

In what can only be described as a sweeping and indiscriminate rebound, most U.S.-listed stocks of Chinese companies rallied significantly today, bouncing back from a losing streak that had carried many of them to new 52-week lows on Wednesday.

Brokerage company Futu Holdings (FUTU -6.31%) led the way on Thursday with a gain of 13%, closely followed by video gaming outfit Bilibili (BILI 2.87%) and Baozun (BZUN 4.37%). Pinduoduo (PDD 1.62%) and XPeng (XPEV 5.56%) saw their stocks jump 10%, while NetEase (NTES 2.65%) gained 9%. E-commerce outfit (JD 4.45%) ended the session up a more modest 7%, though its larger market cap meant more overall net gains for a greater number of investors.

The surge was sparked by a combination of bargain hunting and China's increasingly dovish regulatory stance on its economy.

So what

After months of crackdowns that cast a shadow of doubt on the future of most of China's major companies, a glimmer of sunlight is breaking through. Bloomberg reported late Wednesday that the country's government would be lowering tax rates as part of an effort to spur economic growth. Notably, China's officials are moving deliberately to encourage a rebound in consumerism among its middle class, which has become an increasingly important piece of the country's economy.

This targeted stimulus proved particularly bullish for consumer-facing companies like the aforementioned e-commerce outfits JD and Pinduoduo, as well as retail brokerage name Futu. Most names were lifted, though, with the Nasdaq Golden Dragon China Index logging one of its best single-day gains in years.

Rising chart breaking above the upper edge of a computer screen.

Image source: Getty Images.

Granted, most of these stocks were ripe for a rebound anyway. Hong Kong's technology sector's stocks collectively hit a record low on Wednesday after months of weakness stemming from a governmental effort to rein in the country's companies that were beginning to operate beyond regulators' control.

Still, at least some credit for the bounce must be given where it's due. UBS Global Wealth Management's Kelvin Tay suggested late Wednesday that China's stocks broadly looked undervalued. China International Capital Corporation analyst Li Qiusuo echoed the sentiment, pointing to the idea that as the rest of the world's equities struggle with their own new headwinds, China's stocks become relatively even more compelling. Bolstering both bullish arguments is the fact that despite losing ground for the better part of the year, China International Capital Corporation says a record-breaking amount of foreign capital was poured into Chinese stocks in 2021.

Now what

The scenario certainly seems bullish for bottom fishers. A handful of analysts are essentially indicating the selling effort has already reached an unsustainable extreme. And the sheer scope of today's gains sends a tacit message that many of these beaten-down names may be ready to rally again in earnest.

Don't read too much into Thursday's action, though.

While we may be near or even at a major low, in most cases today's big bounces didn't even unwind the losses suffered by some Chinese stocks over the course of the first three trading days of the week. The aforementioned Baozun, for instance, is still in the red for the week, and all of the aforementioned stocks remain in the red for the month. Moreover, even though he's broadly bullish, UBS' Tay still acknowledges that without clear bullish catalysts on the horizon, Chinese stocks could stagnate for months before truly starting a more prolonged uptrend.

In other words, stay level-headed here. The picture remains more than a little murky, and mere rhetoric alone isn't going to keep the rally moving. Imposing new, restrictive regulations isn't necessarily antithetical to China's stimulus efforts.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Baozun and The Motley Fool recommends Bilibili and NetEase. The Motley Fool has a disclosure policy.

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