Shares of some of China’s largest companies posted staggering gains on Wednesday after news that the government will support the equity market, spur economic growth and clear up a punishing regulatory environment.
(ticker: BABA) the stock was up more than 20% in US trading, with its Hong Kong-listed shares down 27%. Peer e-commerce
(JD) posted gains of 30% after stocks rose more than 35% in Asian trading.
If Alibaba and JD.com win the day with these gains, it would mark, by far, the best day on record for both stocks. The rally was also seen more broadly, with the
Invesco Golden Dragon China ETF
(PGJ) up 25%, similarly on track to break the one-day earnings record.
Optimism overwhelmed investors after China’s top administrative authority said it would work to stabilize China’s equity markets and boost economic growth in the first quarter with “concrete action,” the state-owned Xinhua news agency reported.
The authorities will rely on monetary policy and new loans to achieve their goals, the report said, also published on the Chinese State Council website.
The news from China also included positive developments on the regulatory front, a positive sign for the country’s tech sector.
The Chinese government said it maintained good communications with US regulators and worked on a cooperation plan. In addition to expressing support for overseas listings, the State Council also said that authorities should “steadily advance and complete the rectification work of large platform companies as soon as possible” through transparent and predictable regulation.
The threat that Chinese stocks could be written off in the United States due to lack of accounting transparency has been a major barrier to the country’s overwhelmingly listed overseas tech sector in recent months. Regulatory scrutiny more broadly has seen the market value of companies like Alibaba plummet over the past year – the stock fell roughly 50% in 2021 – as Beijing cracked down on the tech sector.
The selloff of Chinese stocks, and particularly of Chinese stocks listed in the US, has increased over the past week. Earnings for Alibaba, JD.com, and others Wednesday mostly cancel recent declines; both stocks had lost around a quarter of their value over the past five days.
Investors have worried about a triad of pressures, including US regulatory concerns, new Covid-19 blockades in China, and the risk of sanctions if China helps Russia in its war against Ukraine.
“Last year’s regulatory crackdown on internet companies and other industries has made the region more attractive to investors,” said Russ Mold, broker analyst.
“The speed with which Beijing responded to this week’s sell-off would suggest it doesn’t want to let things get out of hand.”
For companies like Alibaba, Wednesday’s earnings may be just the beginning.
ace by Barron As previously reported, at least two key factors are needed for Alibaba’s turnaround: a marked improvement in the regulatory environment and a turnaround in the fundamentals of the Chinese economy and consumer spending.
If there is a well-executed follow-up of the State Council’s commitments, both of these factors could become a reality.
“It’s definitely good news,” said Bo Pei, an analyst at US broker Tiger Securities by Barron. “I think this marks a turning point in regulatory concerns.”
“Fundamentally, even if it won’t see immediate impacts, supportive policies should give investors confidence that a turning point will also come by the end of the year,” said Pei, referring to initiatives to stimulate economic growth, of which could benefit Alibaba through ripple effects on consumer spending.
Other analysts have been more cautious.
“We don’t know how the Council of State does it [will achieve] this commitment, “said Danny Law, analyst at Guotai Junan Securities, one of the largest Chinese investment banks by Barron.
“In our view, improving market sentiment is always a very short-term catalyst unless investors have seen actual movements / stimuli / changes in the market.”
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