What happened
After days of panic-selling, a wide range of Chinese stocks staged a broad relief rally on Wednesday. Many of the stocks had fallen to 21-month lows, as investors worried about a resurgence of the pandemic in China, an ongoing regulatory crackdown, and the Chinese government's stance on the war raging between Ukraine and Russia. While there wasn't any company-specific news, these stocks came roaring back after government officials vowed to boost economic growth and stabilize the markets.
Shares of Alibaba Group Holding (BABA 2.59%) gained as much as 27.8%, JD.com (JD 2.08%) climbed as much as 33.1%, and Didi Global (DIDI 2.33%) surged as much as 51.1%. The trio were still trading higher, up 26.3%, 30.4%, and 50%, respectively, as of 12:45 p.m. ET.
So what
China's Vice Premier Liu He, the country's top economic advisor, said Beijing would take substantial steps to "boost the economy in the first quarter," while also introducing "policies that are favorable to the market." The comments came in the wake of a special session of the State Council's Financial Stability and Development Committee. The committee has oversight of China's financial and securities regulators.
Image source: Getty Images.
The country has faced numerous headwinds in recent months, which have weighed heavily on investor sentiment and driven Chinese stocks to their lowest level in years. The Nasdaq Golden China Dragon Index, which tracks a collection of popular Chinese stocks, plummeted 12% on Monday alone, its largest one-day decline in more than two decades. The index had also plunged 25% over the previous four trading days, as investors worried about multiple challenges facing Chinese companies.
In recent weeks, China has been struggling to contain a resurgence of COVID-19 infections, as the number of cases recently topped a two-year high, forcing the country to initiate new, stringent lockdowns. There are restrictions in more than 11 cities and counties in the world's most populous country, including the population centers of Shenzhen and Shanghai, and China has restricted travel and closed non-essential businesses to combat the latest outbreak.
Adding to the uncertainty, U.S. regulators have taken steps to kick a number of Chinese stocks off U.S. exchanges. The Securities and Exchange Commission (SEC) has identified five companies that could be delisted following the passing of legislation that requires Chinese companies to submit their audit records for review by U.S. regulators.
Finally, news reports from earlier this week suggested that Russia had requested military and financial assistance from China in the wake of the country's war against Ukraine. The U.S. has imposed strict sanctions against Russia in response to the unprovoked invasion, battering its economy. Investors are concerned that a backlash would no doubt ensue if China were to back Russia, whose actions have been condemned by the majority of the free world.
Image source: Getty Images.
Now what
The statements by Chinese government officials were welcomed by investors, resulting in more bullish sentiment on Wall Street.
U.S. Tiger Securities analyst Bo Pei upgraded the China internet sector to outperform (buy) from neutral (hold), positing the sector's biggest ongoing risks are already priced into the beaten-down stocks, which have fallen dramatically in recent weeks and months. Alibaba, JD.com, and Didi Global were all cited in the upgrade. Pei also cited recent reports that suggest regulators from both the U.S. and China have been in talks and are making headway toward finding a mutually agreeable solution to the potential delisting of Chinese stocks from U.S. markets.
The recent headwinds facing Chinese technology stocks may persist, so investors should watch for further developments in these areas. That said, the willingness of China's government regulators to address the situation was welcomed by investors, helping push these stocks up from their recent lows.
