What happened
Shares of some Chinese stocks rose Wednesday as investors reacted positively to earnings reports. The market has also gotten more bullish on the country's businesses despite ongoing concerns regarding its efforts to clamp down on COVID-19.
Shares of digital freight platform operator Full Truck Alliance (YMM 3.03%) were trading more than 13% higher as of 12:36 p.m. ET. Meanwhile, shares of online brokerage UP Fintech Holding (TIGR 5.30%) were up by nearly 8% higher and shares of vaping company RLX Technology (RLX -0.54%) had jumped by close to 20%.
So what
For the third quarter, Full Truck Alliance reported adjusted earnings per American depositary share of $0.07 on total revenue of more than $254 million, both numbers that beat analysts' estimates.
Image source: Getty Images.
The company fulfilled orders of 33.5 million in the quarter, down 5.4% year over year. The average number of monthly active shippers on the platform rose 15.2% year over year to 1.85 million.
"In the context of weak seasonal demand and strong macro headwinds, we delivered solid third quarter results through our powerful digital freight platform and operational excellence," CEO Peter Hui Zhang said in the earnings press release.
For the fourth quarter, Full Truck Alliance projects as much as $260 million in net revenue.
UP Fintech also reported Q3 earnings Wednesday morning, posting adjusted earnings per American depositary share of roughly $0.04 on total revenue of $55.4 million. Revenue beat analysts' estimates.
During the quarter, UP Fintech's base of customers with deposits grew by more than 23%, although total account balances are down by almost 37% year over year and total margin financing and securities lending fell by more than 48% year over year.
While investors remain broadly concerned that China's zero-COVID policy of responding to outbreaks with lockdowns and intense restrictions may hurt the country's economic growth, many pundits believe Chinese stocks have bottomed or are at least nearing a bottom. Hong Kong's benchmark Hang Seng Index is down by close to 25% this year.
"On the fundamentals side, I do think the worst is probably behind [the sector]" said Vivian Lin Thurston of William Blair Investment Management, according to Bloomberg. "The growth of those companies may not be as strong as we saw in the last decade, but it's still very solid and probably more favorable than other sectors within China. The investment opportunities are very interesting and attractive."
Now what
It's been an absolute roller-coaster ride for Chinese stocks since the pandemic started. They've dealt with a struggling Chinese economy and a regulatory environment that has gone from highly restrictive to more relaxed recently as the government pursues policies intended to ramp up economic activity. But the erratic behavior of the Chinese government on that front makes investments there harder to evaluate.
I think a lot of these Chinese companies have strong potential given the size of their prospective markets, but the behavior of the Chinese equities market has been too volatile for me to really get behind.
In assessing opportunities, I would look for Chinese companies that are larger, more established, and look less likely to attract extremely intense attention from the country's regulators. For instance, the Chinese government recently imposed a 36% tax on the production or import of e-cigarettes. That will certainly hurt RLX Technology.
Of these three names, I tend to favor Full Truck Alliance and I really like its concept, but I'd still recommend any investor do lots of due diligence on the regulatory environment surrounding the company before buying the stock.
