What happened
Shares of several Chinese stocks trading on U.S. exchanges fell today as investors digested a lot of news coming out of China.
Shares of the large e-commerce company JD.com (JD 1.13%) traded roughly 7.3% lower as of 10:52 a.m. ET today, shares of the financial services platform Lufax Holding (LU -0.77%) traded nearly 9% down, and shares of the online grocery platform Dingdong (DDL 0.01%) traded roughly 8% down.
So what
There has been seemingly good news for Chinese stocks recently, although it has failed to impress investors. President Joe Biden said yesterday that he would review some of the tariffs on Chinese imports first implemented by former president Donald Trump and would consider removing them. Biden's comments led to the yuan increasing by as much as 0.7%, the highest it's been since earlier this month.
Image source: Getty Images.
The Chinese government also made good on its promise to provide stimulus and rolled out the equivalent of $21 billion in tax rebates and more than $45 billion of railway construction bonds. But the market was unclear if that would provide enough support and instead continued to focus on COVID restrictions in the country that have been slowing economic growth.
"Since supply chain disruptions and loss of public confidence are areas that Beijing has little control [over], cutting taxes and easing monetary policy are not likely to solve the problems much," said Chi Lo of BNP Paribas Asset Management, according to Bloomberg.
Analysts at Goldman Sachs also are growing increasingly concerned about problems in China's real estate sector. Goldman analysts Kenneth Ho and Chakki Ting recently wrote in a research note that 22 issuers of high-yield bonds in China's real estate sector have missed payments on their bonds or deferred payments since the start of this year.
Due to this trend, Ho and Ting are assuming that the default rate on high-yield Chinese property bonds will be around 31.6%, which is much higher than the analysts' prior forecasts of 19%.
"We are unlikely to see a broader recovery in China Property HY (high yield) until property sales begin to show signs of a rebound," Ho and Ting wrote.
Now what
There has been a mix of news related to Chinese stocks since the week started, so it seems investors are following the drop in broader markets today.
Truthfully, I was a little bit surprised to see the dip, considering the Chinese government actually rolled out stimulus and lived up to its promises. Also, you would think investors would cheer Biden's announcement that he'll be reviewing certain tariffs.
But as with the broader markets, there is still a lot for Chinese stocks to overcome. COVID lockdowns have been devastating for the economy. Shanghai got hit particularly hard, and while the city is planning to fully reopen by mid-June, Morgan Stanley's chief China economist, Robin Xing, said while the worst might be behind the country, "we also think the road to recovery will likely be slow and bumpy."
I actually think it's somewhat good news to see the Chinese government being more supportive of the economy and Chinese tech stocks lately, but there are factors outside its control, which continues to make things uncertain.
