What happened
Shares of several Chinese stocks listed on U.S. exchanges rose today as parts of China, including Beijing and Shanghai, reopened after months of COVID-19-induced lockdowns that have hampered economic activity.
Shares of real estate company KE Holdings (BEKE -1.29%) traded nearly 12% higher as of 10:35 a.m. ET today. Shares of online recruitment platform Kanzhun Limited (BZ 0.67%) traded close to 10% higher, and shares of education company New Oriental Education & Technology Group (EDU -1.65%) traded more than 11% higher.
So what
Over the weekend, the Chinese government began to ease COVID-19 restrictions and lockdowns that have dogged the economy and frustrated residents for months now. For roughly two months, Shanghai's residents have been dealing with restrictions that ordered them to stay in their homes. Beijing only had to lock down some neighborhoods, but has been dealing with various COVID restrictions over the past month. On Sunday, China only reported 54 COVID cases in the entire country, including eight in Beijing and six in Shanghai.
Image source: Getty Images.
The restrictions have not only been problematic for Chinese citizens and businesses, but also for the Chinese government; its economic target of 5.5% gross domestic product (GDP) growth this year now looks out of reach. Many analysts at major banks are projecting much lower GDP growth for the country this year.
"Local clients worry about scarring effects from anti-pandemic measures and growth slowdown, which include heightened uncertainties around economic and policy outlook, a higher number of bankruptcies and elevated unemployment rates," Goldman Sachs analysts said in a recent research note.
In other news, KE Holdings reported earnings results for the first three months of the year this morning. Adjusted earnings per American depositary share of $0.08 beat analyst estimates by $0.13. Revenue of $1.98 billion beat by $230 million.
Still, despite the beat in the quarter, conditions have been anything but easy. Gross transaction volume at the company fell by 45% year over year, while net revenue was down 39% over the same time frame.
"There is no doubt that we are being tested this year on multiple fronts, but we are resolute in our belief that the value we bring to our customers gives us an enduring competitive advantage in both good times and tough times. We are prepared to manage through this difficult phase, stay tenacious and optimistic as always, build new capabilities and emerge stronger," CEO Stanley Yongdong Peng said in a statement.
Now what
The good news is that the Chinese government is easing up on COVID-19 restrictions, which look to have really hurt many parts of the economy. Furthermore, many Chinese companies seemed to report better-than-expected earnings in the first quarter, although Q1 largely happened before the restrictions, so perhaps there will be some pain felt in the second quarter.
The economic environment is still not easy, but hopefully companies will be able to get back to business now. The Chinese government also appears to want to get economic growth back on track, which it has shown by providing stimulus and a much more supportive attitude, especially to Chinese tech companies.
Chinese stocks are always complicated, due to how much regulation can impact these companies, but with a huge sell-off over the last year and huge market opportunities, it may be time to start looking for bargains. Whenever you are researching Chinese stocks, make sure to closely examine how regulation can impact the specific stock you are looking at and think about downside scenarios if COVID-19 cases reemerge.
