What happened
In the face of a far-reaching correction and ongoing bear market for technology companies, some of China's most widely followed stocks staged a broad relief rally on Tuesday. Like many technology stocks, these issues had fallen to multi-year lows, as investors considered a resurgence of the pandemic in China, an ongoing government regulatory crackdown, and the uncertainty of the overall economic picture. These same stocks showed signs of life again today, after a high-ranking government official gave a rare show of public support.
Shares of Baozun (BZUN 0.42%) gained as much as 14.7%, Pinduoduo (PDD -1.05%) climbed as much as 13.4%, and Didi Global (DIDI -3.12%) surged as much as 11.4%. As of market close, the trio were still trading higher, up 5.4%, 6.1%, and 1.3%, respectively.
So what
China's Vice Premier Liu He, the country's top economic advisor, appeared at a symposium Tuesday, and said after the event that Beijing would support companies that are central to the digital economy in China. While details were scarce, the comments came in the wake of a year-long crackdown by government agencies that targeted some of the country's most well-known technology companies.
Image source: Getty Images.
China's economy has faced a host of headwinds in recent months, not the least of which is its struggle to contain on ongoing resurgence of COVID-19 infections and the country's Zero-COVID policy, which caused lockdowns in some of China's biggest municipalities. Shanghai, the country's largest city, was the latest metropolitan area to be shuttered, enduring several weeks of restrictions resulting from the government's zero-tolerance policy.
These measures have roiled the Chinese economy, as consumer spending and industrial output plunged to their worst levels since the start of the pandemic, with little relief in sight. Investors are optimistic, however, as China's Hang Seng Tech index has rebounded from a three-year low in mid-March, rallying 23% in the two months since.
At the same time, JPMorgan Chase analysts have turned more bullish on China's internet sector, upgrading a number of popular stocks -- including Pinduoduo and Baozun -- after calling the space "uninvestable" just two months ago.
Now what
This pronouncement by a Chinese government official was warmly received by investors, resulting in greater optimism and more bullish sentiment on Wall Street. This is the second such assertion in recent months. The vice premier announced back in March that Beijing would take meaningful steps to "boost the economy in the first quarter," while also introducing "policies that are favorable to the market."
China is targeting 5.5% economic growth this year, though some analysts predict it may have difficulty reaching that aggressive benchmark in light of the continuing COVID-19 outbreaks in the country.
While the ongoing headwinds facing Chinese technology stocks may continue, government regulators appear ready to support some of the country's most notable companies. The move is being welcomed by investors, and it's helping these stocks to move higher on the road to recovery from recent lows.
