What happened
Shares of many Chinese stocks rose this week as China's central bank trimmed one of its short-term interest rates and also on rumors that stimulus could be coming.
Shares of the online grocery delivery company Dingdong (Cayman) Limited (DDL 2.44%) traded nearly 17% higher for the week as of 12:46 p.m. ET Thursday, according to data from S&P Global Market Intelligence.
Meanwhile, shares of the online education company Gaotu Techedu (GOTU -2.62%) have surged roughly 21% this week and shares of the electronic-vape company RLX Technology (RLX) were up nearly 15%.
So what
Earlier this week, the People's Bank of China (PBOC) trimmed the yield on its seven-day reverse repurchase rate from 2% to 1.9%, a move that will lower borrowing costs. The PBOC also lowered the yields on its emergency standing loan facility for commercial and policy banks in the country.
Image source: Getty Images.
The move comes as investors have begun to worry about the economic rebound in China. Last year, the economy struggled due to the government's "zero-COVID" policies, which included wide-scale lockdowns. China's economy seemed to be trending in the right direction, generating growth of 4.5% in the first quarter.
But with high youth unemployment, a struggling property market, slowing factory production, and geopolitical tensions with the U.S., investors are no longer as certain about China's economic recovery as they once were. Today, new data showed that China's industrial output increased by 3.5% in May on a year-over-year basis, while retail sales grew 12.7%. Both numbers missed expectations.
"It's hard to be positive about China's economy at the moment," Moody's Senior China Economist Katrina Ell told The Wall Street Journal.
There are now expectations that the PBOC could cut rates further this year and that the government will roll out stimulus initiatives in order to boost economic growth. Citing anonymous sources, The Wall Street Journal reported today that the Chinese government is expected to soon introduce measures that could include billions in new infrastructure spending and that would also encourage investors to buy more real estate properties.
"There's little incentive for people to buy homes other than for living in them," Shen Meng, a director of the investment bank Chanson & Co. based in Beijing recently said, according to the Journal. "Their faith that home prices will only go up has been shaken."
Now what
The more bullish outlook that investors had about China's economy heading into the year certainly seems to be losing steam, but not all are down on China right now.
Ken Griffin, the billionaire founder of the large hedge fund Citadel, recently said his economists think China's economic growth could come in better this year than some expect. I think it's too early to know how China's economy will perform the rest of the year but stimulus would definitely help the government achieve its 5% growth target.
Ultimately, while I am intrigued by Dingdong's model, I am not terribly interested in any of these stocks right now. They are smaller and I tend to prefer the larger Chinese names due to the volatility the sector can experience and other risks in the sector like regulation.
