What happened
Several prominent Chinese stocks jumped higher today after regulators continued to signal a more relaxed regulatory approach toward Chinese tech stocks.
Shares of the large Chinese e-commerce company Alibaba (BABA -0.14%) had jumped close to 13.5% higher as of 3:05 p.m. ET today.
Meanwhile, shares of the electric carmaker Nio (NIO -3.12%) and the large search engine and artificial intelligence company Baidu (BIDU -0.59%) both traded nearly 11% higher.
Image source: Getty Images.
So what
The big news driving the sector today is the China Banking and Insurance Regulatory Commission's recent approval of a new capital plan for the Ant Group's consumer finance unit. Alibaba owns about one-third of Ant.
As part of the new plan, Ant will be able to raise about $1.5 billion for its fintech arm and adjust the equity structure of the unit as well. Ant will still control half of the outstanding shares in the subsidiary.
As you may recall, Ant attempted to go public in 2020, but regulators halted the IPO at the time. Then in April 2021, the People's Bank of China (PBOC) requested that Ant restructure its fintech arm, which included creating further division between Ant's payments app Alipay and its lending products. The PBOC also asked Ant to make its money market fund smaller.
Usually, when companies win approval for moves that involve expansion, it's a sign that they are in good standing with regulators. This recent approval is a continuation of steps the Chinese government has taken to show that it is moving away from a more restrictive regulatory approach.
According to CNBC, Fawne Jiang of Benchmark said in a research note:
China has struck a notably accommodating tone in recent months, pivoting away from its stringent COVID controls and dialing back its regulations on previously highly depressed sectors (i.e., property). The recent Central Economic Work Conference (CEWC) has set government's priority for 2023 to revive consumption and support the private sector.
A company like Alibaba is more or less a bellwether for Chinese stocks. Oftentimes, when it does well, the rest of the sector follows suit.
In other related news, Nio yesterday reported that the company's deliveries in the fourth quarter soundly beat analyst estimates. Nio delivered more than 40,000 vehicles in Q4, up 60% year over year. Deliveries in the month of December came in at a record 15,815. Overall, vehicle deliveries in 2022 of 122,486 were up 34% against 2021 deliveries.
Now what
The approval of Ant's expansion is certainly good news for the sector. But this isn't just a one-off step, more like part of a series of ongoing moves by regulators that show a more relaxed regulatory approach.
Now, the Chinese government and regulators can often be unpredictable, so you always have to be aware of the regulatory risks when investing in Chinese stocks, but I do think the government is making a big push for an economic recovery after a difficult year in 2022.
I think Alibaba, Nio, and Baidu all have strong long-term potential, given their size, market opportunity, and importance to the Chinese tech and industrial sectors. However, prepare for volatility along the way.
