What happened
After a difficult last week of trading, Chinese stocks are moving higher on renewed hopes that stimulus might be around the corner, as well as potential benefits from recent geopolitical events.
Shares of the Chinese tech and e-commerce conglomerate Alibaba Group (BABA 0.59%) rose nearly 2% today. Meanwhile, shares of the video-sharing platform Bilibili (BILI 4.96%) rose nearly 4% and shares of another e-commerce company, Baozun (BZUN 6.18%), ended the day up roughly 1.5%.
So what
Since China's central bank started cutting select benchmark interest rates a few weeks ago there has been wide debate over whether or not the Chinese government is going to follow through with stimulus measures in an effort to get the economy going.
Image source: Getty Images.
Bank of America's chief economist for Greater China, Helen Qiao, said in a recent research note that she thinks China is about to implement policies that increase consumption, boost investment, and also help the country's ailing property sector, which makes up a big piece of economic growth.
"More coordinated easing measures are on the way," she wrote, adding that the valuations of Chinese stocks look more attractive and have experienced recent earnings upgrades from analysts.
Meanwhile, billionaire investor Mark Mobius, who heads Mobius Capital Partners, thinks the recent failed coup in Russia could encourage Chinese President Xi Jinping to ease up on some of his more aggressive geopolitical policies, which would be good for Chinese stocks.
"I'm sure they are looking very carefully at what is happening in Russia and it must be pretty frightening," Mobius said in an interview with Barron's that was published today. What Mobius appears to be saying is that if China believes that the way Russia runs its government and economy is ultimately bad for business, it might back away from similarities it shares with Russia, which might get foreign investors more interested.
When asked about what stocks Mobius is now looking at in mainland China, he said those without any risk of government intervention.
"For example, we were looking at a medical supplies company, but recently the government came in to regulate pricing, which becomes a problem for margins," said Mobius. "You have to be on the right side of policy but in an area where the government won't be interested in imposing controls one direction or another -- and avoid companies that stand out [in a way] that could result in government intervention."
Now what
It still seems up in the air whether China's government will come in and save the day with stimulus. Over the last week, many analysts and economists have been back and forth on the issue. But I certainly wouldn't write China's economy off just yet, as it may surprise in the back half of the year.
Mobius' comments are certainly very interesting though and present a unique take from a successful and experienced investor. I think it will take time to see the policy direction China's government does eventually take, but there should be opportunities between now and then.
While Alibaba, Bilibili, and Baozun are all tech stocks subject to government intervention, my favorite remains Alibaba. Yes, the government could certainly come down on the company as it has in the past, but I think Alibaba's decision to soon split into six different units and explore initial public offerings for each could enhance shareholder value significantly. It also lowers regulatory risk because a regulatory issue with one division may not impact the others as much.
