What happened

Despite difficult market conditions this week, several Chinese stocks continued to trade higher after some positive earnings results and bullish sentiment from Wall Street.

Shares of JD.com (JD 2.13%) traded nearly 6.5% higher as of 1:08 p.m. ET today, shares of TAL Education Group (TAL -0.77%) traded more than 12% higher, and shares of Pinduoduo (PDD -0.16%) traded nearly 9% higher.

So what

Chinese stocks have not fared well over the last year, as a harsh regulatory backdrop has created lots of uncertainty and dogged the sector. Additionally, China has been dealing with COVID-19-related lockdowns and other macro issues that have led to experts and analysts trimming their economic forecasts for the year. Recently, Goldman Sachs slashed its gross domestic product (GDP) growth forecast for China in 2022 from 4.5% to 4% after new economic data in April showed slowing growth, largely due to lockdowns. Earlier this week, Citigroup cut its GDP growth forecasts from 5.1% to 4.2%.

"We now expect reopening does not start before 2023Q2 and the process to be more gradual and controlled than previously assumed," analysts at Goldman wrote in a research note.

Red line with arrow moving up next to three wooden houses.

Image source: Getty Images.

Still, some companies like JD.com continued to impress the market with recent earnings results. Earlier this week, JD.com reported its slowest year-over-year revenue growth, but still beat analyst estimates for earnings and revenue in the quarter.

"JD.com's robust supply chain capabilities and technology-driven operating efficiency underpinned our solid performance during the quarter as we continued to deliver healthy growth amid a challenging external environment," JD.com's CEO Xu Lei said in a statement.

Additionally, analysts at J.P. Morgan upgraded Chinese stocks. Analyst Alex Yao said in a report that "significant uncertainties should begin to abate on the back of recent regulatory announcements." Among these announcements, Chinese regulators and the Chinese government said they are willing to work with U.S. financial regulators to solve a long-standing auditing dispute. They also pledged to provide stimulus to achieve their desired GDP growth targets.

"We think key risks to the sector have diminished, particularly in terms of regulatory risk, ADR [American depositary receipt] delisting risk, and geopolitical risk," Yao added.

One Chinese stock that received a nice upgrade is Pinduoduo, a tech platform that allows farmers to connect with consumers directly for the purchase and sale of produce. On Monday, the team at J.P. Morgan double-upgraded the stock from an underweight rating to an overweight rating and raised their price target from $27 to $55. Pinduoduo currently trades at $42.

Now what

Chinese stocks have been filled with uncertainty and are hard to predict, but seem to be coming around after the Chinese government has begun to ease its regulatory stance toward tech stocks and stocks that trade on U.S. exchanges.

While I am starting to see the light here, especially on JD.com after its impressive quarter amid difficult conditions, keep in mind that things can always change quickly. After all, a few months ago analysts at J.P. Morgan called Chinese stocks "uninvestable."

I am coming around on these stocks because of the good regulatory news, but remember to invest for the long term and that things could be incredibly volatile in the near term.