What happened
Chinese stocks have perked up this week, as the Chinese government has continued to promote economic growth and rumors swirl about more accommodating economic policies.
For the week, shares of the online tutoring company TAL Education Group (TAL 8.89%) traded 17% higher as of 2:01 p.m. ET Thursday. Meanwhile, shares of food delivery service Dingdong (DDL 0.82%) traded close to 15% higher, while shares of the online education company Gaotu Techedu (GOTU 6.67%) were up about 13%, according to S&P Global Market Intelligence.
So what
After a tough year for the Chinese economy in 2022, largely due to sweeping COVID-19-related lockdowns that really hurt consumer spending, the Chinese government has taken steps to reopen the economy and try to boost economic growth. But so far, the results have been mediocre, with home sales still struggling in the country and the unemployment rate still high as well.
Image source: Getty Images.
This week, however, a Chinese Communist-run newspaper reported that China's President Xi Jinping is asking local governments to try and promote policies that encourage consumer consumption. Other outlets are speculating that the Chinese government could further lower the reserve requirement of Chinese banks, which would enable more lending.
"There's room for China to ramp up its accommodative policies, given the very mild inflation data," Founder Securities analyst Yan Xiang said, according to the South China Morning Post. "A rapid downward cycle in corporate earnings is already over, and there is more upside in stocks."
While Hong Kong's broader benchmark Hang Seng Index has fallen about 2.7% over the last month, investors seem to be growing more bullish on the sector. U.S.-based mutual funds and exchange-traded funds that purchase Chinese stocks have seen $2 billion of net inflows this year.
"The growth story on a relative basis is more appealing in China and parts of Asia than it is in the U.S.," said Jason Draho of UBS Global Wealth Management, according to The Wall Street Journal. "I think you're going to see earnings growth, and potentially sizable earnings growth in China versus flat or declining earnings this year in the U.S."
Speaking of earnings in China, Dingdong earlier this week reported record profitability of about $7.3 million on total revenue of about $900 million. The company also thinks it can continue to keep its head above water and break even on an adjusted earnings basis for the full year.
Now what
Many investors are now much more bullish on Chinese stocks than other markets like the U.S. because there should be a lot of pent-up demand from lockdowns last year that most other countries didn't have. The Chinese government is also really hoping to get the economy going, demonstrating a more accommodating policy stance all around, which is a markedly different approach than it took a few years ago.
While I definitely like the concepts behind all three of these companies, particularly Dingdong, I tend to think larger Chinese stocks are better to own. They tend to be a little less volatile and a bit more capable of handling a harsher regulatory regime. But overall, Chinese stocks definitely look more intriguing right now than they have in the past.
