Chinese stocks are soaring. Here's why

Investors are optimistic on Tuesday, but there are still plenty of risks involved with investing in China.

Graphic showing yellow arrow above vertical columns indicating a rising share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

U.S. stocks showed signs of a potential bounce on Tuesday morning, albeit a modest one. Stock index futures were up as much as a third of a percent shortly before the regular trading session began on Wall Street.

One factor that has weighed on investor sentiment recently has been the ongoing battle that the Chinese government has waged against the COVID-19 pandemic. China has been a lot more stringent with its lockdown measures to stem the potential spread of the disease, and that has raised concerns about how much downward pressure the government's actions could have on economic activity. With Chinese citizens now starting to protest lockdowns and other restrictions, the prospects for eliminating the zero-COVID policy in favor of a more lenient alternative are giving many well-known stocks in China a boost on Tuesday morning.

What China could do

Investors in Chinese companies got more comfortable after hearing comments from China's National Health Commission (NHC). The governmental body said that it would make a greater effort to provide COVID-19 vaccinations for its elderly population, aiming to protect those over 80 and making booster shots available sooner after primary vaccinations. The NHC is also looking to launch a campaign to convince those who are reluctant to get vaccinated that the benefits of COVID-19 vaccines outweigh any perceived downsides.

Interestingly, the reaction to recent protests in China has been mixed. At first, investors feared that the Chinese government would crack down on protestors with COVID-19-related measures that could be stricter than current guidelines. However, more market participants seem to view the protests as potentially having a positive influence in persuading government officials to loosen their zero-COVID policy.

That's a big part of why some major Chinese stocks moved higher in premarket trading Tuesday morning. Alibaba Group Holding rose 5%, matching gains from electric vehicle companies Li Auto and XPeng. Baidu climbed 6%, while JD.com moved 7% higher.

Solid earnings from Bilibili

Also boosting sentiment on Chinese stocks, Bilibili (NASDAQ: BILI) released its latest quarterly results on Tuesday, and the stock climbed 10% in response. The online gaming and digital media company reported solid gains in the third quarter, including an 11% rise in revenue year over year to $814.5 million. Net losses narrowed by 36% from year-ago levels to $241 million as Bilibili reported a 25% rise in daily active users to 90.3 million. Almost 333 million people now use the service on a monthly basis, and while less than 10% of those users actually pay for a premium subscription, Bilibili reported high levels of engagement.

Shareholders were pleased to see Bilibili responding proactively to macroeconomic threats. Already, Bilibili's numbers are reflecting more efficient operations, as gross margin improved and expenses for sales and marketing fell as a percentage of total revenue. The company anticipates continuing to control its costs strictly, with an eye toward unlocking even more savings as it aims to become consistently profitable as soon as it can.

More hurdles ahead

COVID-19 is only one of the factors that have weighed on Chinese stocks in recent years. Turbulent foreign relations between China and the U.S. have led to volatility, while structural aspects of the Chinese economy have introduced systemic risks for investors to consider. Talk of potentially delisting Chinese stocks has quieted in Washington, but it could come back in 2023 and beyond.

Nevertheless, progress toward moving beyond the zero-COVID policy seems to be giving investors more comfort in investing in Chinese stocks. Those who are comfortable with the risks could find interesting opportunities in China. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Baidu and JD.com. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Bilibili. The Motley Fool Australia has recommended JD.com. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

electric vehicle such as Tesla being charged at charging station
International Stock News

Why did the Tesla share price just tumble 7%?

Nasdaq investors just sent the Tesla share price sharply lower.

Read more »

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »