What happened
Shares of several Chinese stocks trading on U.S. exchanges rose today after the Chinese government further indicated it will support Chinese tech and growth stocks.
Shares of JD.com (JD 5.80%) traded close to 5% higher as of 10:45 a.m. ET today. Shares of Alibaba (BABA 2.33%) traded nearly 7% higher, and shares of Full Truck Alliance (YMM 1.93%) had risen more than 12%.
So what
Many Chinese tech and growth stocks have struggled over the past year as the Chinese government has issued regulatory orders, imposed fines, and instituted other orders, largely due to data and privacy concerns, that have really hurt the sector. Chinese stocks have taken a beating. But after the resurgence of COVID-19 cases in the country earlier this year and lockdowns, which have really taken a bite out of the economy, the Chinese government has started to ease up in an effort to boost economic growth.
Image source: Getty Images.
Earlier this week, media outlets citing anonymous sources reported that the Chinese government may soon end investigations into large tech companies like Didi Global and Full Truck Alliance. The Chinese government had previously pulled these companies from domestic app stores, making it difficult for them to add new users. The reports said the companies will soon be allowed back onto app stores.
In another sign today that the Chinese government is adopting a much friendlier regulatory approach, China's video game regulator gave the green light and issued licenses to 60 new video games. The regulator hadn't approved any new games for nine months until April.
Adam Montanaro, an investment director at Abrdn, said, "the worst is behind us in terms of earnings and regulations." He also said the recent licenses are another sign of "the government's more supportive tones and gestures toward the internet economy."
In other news, Full Truck Alliance, which is a platform that links shippers with truckers to complete orders, kept its streak going this morning as the market reacted positively to its most recent earnings report.
For the first quarter of this year, Full Truck Alliance reported a net loss equivalent to roughly $30 million on total revenue equivalent to roughly $210 million. Average shipper monthly average users in the first quarter grew to 1.42 million, up from 1.22 million in the first quarter of 2021. Full Truck Alliance also guided for total net revenue in Q2 to come in between $230 million and $250 million, implying some solid quarterly growth.
Now what
While there has been a lot of good news related to Chinese stocks recently, the country's regulatory regime can be unpredictable and things can change fast.
Manuel Muehl of DZ Bank AG, who was one of the first analysts to sour on the sector before the Chinese government cracked down, still thinks it could be a bit early to go in on Chinese stocks.
"I feel this is a bit premature and highly undifferentiated," Muehl said in an email on June 7, according to Bloomberg. "Jumping to conclusions and expecting the regulator to change other rules, which currently harm the companies in my coverage, seems a bit too soon."
I certainly don't disagree with Muehl considering how uncertain the regulatory landscape in China can be. However, given that all of these stocks are trading at depressed levels and the fact the Chinese government has now made numerous indicators that it will support the sector, I think there are good long-term buy-and-hold opportunities here.
