What happened
Shares of several Chinese stocks rose this morning as the Chinese government continued to make efforts to bolster the economy.
Shares of the large Chinese e-commerce company Alibaba Group Holding (BABA -1.14%) traded more than 3% higher as of 9:51 a.m. ET today. Shares of the other large Chinese e-commerce company, JD.com (JD 0.36%), traded nearly 5% higher, while shares of the Chinese beauty company Yatsen Holding (YSG 0.28%) traded more than 10% higher.
So what
Intense lockdowns brought on by a resurgence of COVID-19 hampered economic growth in large Chinese cities for months on end earlier this year, lowering expectations for the economy. The Chinese government had initially set a goal to grow gross domestic product (GDP) by 5.5% in 2022 but Goldman Sachs analysts are currently only projecting 3% growth.
Image source: Getty Images.
The Chinese government is trying to boost growth and get the economy back on track. China's central bank has now lowered key benchmark interest rates several times over the last few weeks.
Yesterday, China's state council unveiled a 19-point policy package that increases the amount of stimulus it would inject into the Chinese economy by 1 trillion Yuan, which is about $146 billion. The new stimulus will largely be put toward infrastructure spending. Roughly half of this amount will go to local governments in the form of special bonds, while 300 billion Yuan will be given to banks to invest in infrastructure.
In other news, Yatsen recently reported its second-quarter earnings results. The company reported a $0.06 net loss per American depositary share on total revenue of $142.1 million. The loss came in much less than for the same time period one year ago, but revenue fell more than 37%. Furthermore, Yatsen achieved positive cash flow in the second quarter for the first time since going public.
"The second quarter of 2022 was challenging due to the resurgence of COVID-19 in many regions of China, which dampened consumer beauty spending. While our topline declined by 37.6% year-over-year, our net revenues from Skincare Brands grew by 49.2% to make up one third of Yatsen's total net revenues," CEO Jinfeng Huang said in an earnings statement.
Yatsen said it expects to generate revenue of between 738.4 million and 872.7 million Yuan in the third quarter, a decline of 35% to 45%, largely because of lower demand right now for cosmetics products.
Now what
China's economy is still in a tough spot following the COVID-induced lockdowns and it will take some time to see the benefits of lower interest rates and stimulus, but overall it's good news to see the Chinese government being more supportive than restrictive.
Additionally, there could soon be an agreement between U.S. and Chinese financial regulators that solves a long-standing auditing dispute and allows Chinese stocks to continue trading on U.S. exchanges, which would remove a key risk for investors. The Securities and Exchange Commission has named hundreds of Chinese stocks this year that face being delisted because U.S. financial regulators can't audit their working financial statements.
Ultimately, while there are lots of risks, I think a lot of Chinese stocks, particularly Alibaba and JD.com, are well positioned to bounce back in a post-pandemic environment.