Several Chinese stocks traded on US exchanges rebounded for no apparent reason, although it appears some bullish sentiment on Wall Street and recent macro news in China may be behind the move.
Shares of the major Chinese e-commerce company Alibaba Holding Group (NYSE: BABA) was trading more than 3% higher today at 2:22 p.m. ET today. Shares of another major Chinese e-commerce company, JD.com (NASDAQ: JD)was trading more than 4% higher, and shares of Tencent Music Entertainment Group (NYSE:TME) traded over 8.4% higher.
Chinese stocks struggled last week with Hong Kong Hang Seng Index down around 3.6% over the past five trading days as China’s economy continued to show signs of slowing all year after COVID-19-induced lockdowns.
On Monday, the Chinese central bank continued to lower its key interest rates in a bid to revive the economy. The People’s Bank of China cut its five-year prime rate from 4.45% to 4.3% and also cut its one-year prime rate from 3.7% to 3.65%.
A week before Monday, the central bank cut its short-term bank lending rate to 2% from 2.1% and its one-year lending rate to 2.75% from 2.85%. The move came after retail sales data and industrial production data for China in July were worse than expected.
Lower interest rates tend to favor high-growth tech stocks because they can increase their earnings power and lower the cost of doing business. Investors also tend to become more aggressive when rates are reduced. But it may take a while for rate hikes to take hold, regardless of their direction.
In other news, JD.com received positive sentiment from the streets today. First, Fawne Jiang, an analyst at The Benchmark Company, raised his price target on JD.com from $106 to $109. So Citigroup Analyst Alicia Yap maintained the company’s Buy rating on the company, although the analyst lowered the share price target from $93 to $91 per share. JD.com is currently trading below $60 per share.
Yap said she believes the e-commerce giant will start growing revenue and users much faster once the pandemic is completely over in China. The bullish calls come a day after JD.com reported earnings and revenue for the second quarter of the year that far exceeded analysts’ estimates.
China’s economy has obviously had a tough time this year, as intense COVID-19-related lockdowns have really dampened growth. The recovery in Chinese equities could take some time, especially if there are other global macro issues.
But the Chinese government generally seems more supportive of big tech companies in the country, which is important because if Chinese regulators aren’t with certain companies, they can make life very difficult.
Alibaba, JD.com and Tencent Music have seen their stocks sell off strongly over the past year, so there could certainly be an upside if economic conditions improve. I think JD.com and Alibaba are two of the best positioned long-term buys in the industry.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Citigroup and has the following options: long January 2024 $80 calls on Citigroup. The Motley Fool fills positions and recommends JD.com. The Motley Fool has a disclosure policy.
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