What happened
Shares of the Chinese online content community Zhihu (ZH 2.61%) traded nearly 18% higher as of 10:17 a.m. ET today after receiving some positive sentiment from Wall Street this morning.
So what
J.P. Morgan analyst Alex Yao upgraded Zhihu from an underweight rating to neutral, although he lowered his price target on the company from $1.80 per share to $1.50. As of this writing, shares of Zhihu traded around $1.60.
In his research note to investors, Yao said that "significant uncertainties" facing Chinese internet stocks may start to ease after recent regulatory announcements and indicators from the Chinese government. Yao believes "early cycle sectors" including e-commerce, entertainment, and local service will be "the first batch of outperformers." Zhihu is a question-and-answer website and works similarly to Quora.
Image source: Getty Images.
Chinese stocks have not had it easy over the past year, and even after today's rally, Zhihu is down 80% since going public in March 2021.
Many Chinese stocks trading on U.S. exchanges have faced a potential delisting threat, as financial regulators in the U.S. and China have struggled for years to solve a long-standing dispute over auditing regulations. U.S. regulators want full access to the working financials of Chinese companies trading on U.S. exchanges, but Beijing has restricted access due to national security concerns. Now, U.S. and Chinese financial regulators appear to be working on a potential agreement over the auditing dispute.
Additionally, after taking a much harsher approach to Chinese tech companies, which included regulatory orders and fines on several prominent Chinese companies, the Chinese government now appears to be much more supportive of the growing sector.
Now what
The low stock prices and easing regulatory environment could make this a good time to get in on Chinese stocks, but invest with caution as they are still highly susceptible to regulatory action in China.
