Foreign-listed Chinese shares rallied on Wednesday after Beijing vowed to keep markets stable, soothing overseas investors' nerves after a sell-off due to worries over differences between China and the West in the Russia-Ukraine war.
Remarks by China's Vice Premier Liu He that Beijing would roll out support for the economy and keep markets stable sparked a bounce from 21-month lows for local equities, fuelling a rally for U.S.- and Europe-listed Chinese shares.
In U.S. trading, JD.com JD.O jumped 39.4%, Alibaba BABA.N gained 36.8% and Pinduoduo PDD.O rallied 56.1% in the biggest daily percentage advances ever for those shares. They fell to multi-year lows during Tuesday's sell-off. Read full story The iShares MSCI China exchange-traded fund MCHI.O rose 20.9%.
Similarly, gaming company NetEase NTES.O rose 25.7%, online video platform IQIYI IQ.O jumped 50%, music-streaming company Tencent Music TME.N gained 29.3%, and mobile game publisher Bilibili BILI.O advanced 47.6%, while Amsterdam-listed Prosus PRX.AS, which owns a 29% stake in the Chinese tech giant Tencent 0700.HK, also gained sharply.
"It was an utter surprise to the market that this is something (China is) even thinking about," said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey. "That's what made the rally so strong."
Still, "there's going to be a discount on all of these stocks for a while," he said, noting the recent JPMorgan Chase downgrade. Earlier this week, JPMorgan Chase & Co downgraded 28 Chinese stocks listed in the United States and Hong Kong.
"You need some follow-through here. It's not enough to have one Chinese official say something really positive," Meckler said.
Citibank's Asia-Pacific trading strategist in Hong Kong, Mohammed Apabhai, likened the moment to the Federal Reserve's market backstop in 2020 or then-ECB chief Mario Draghi's "whatever it takes" speech that staunched the eurozone crisis in 2012.
"It's not quite of that order of magnitude, but it's not that far away either," he said. "It seems like China has realized that the need to do something to support the economy, something proper."
Chinese equities have seen severe selling pressure in recent days. Hong Kong stocks .HSI fell to a six-year low on Tuesday.
"Although it is still a volatile and somewhat opaque market, I think this is the right moment to look at Chinese stocks because valuations are good and macro data are recovering," said Giuseppe Sersale, fund manager at Anthilia in Milan.
Frankfurt-listed depository receipts for Alibaba AHLAy.F were among the most traded stocks on the Tradegate T2GG.F and Lang & Schwarz platforms, suggesting interest from German retail investors.
According to Vanda Research, which tracks retail flows, appetite for China ADRs has picked up the most since September 2021, with net purchases over the last 10 trading sessions topping $500 billion, the highest level in over six months.
Separately, China's securities regulator said it would continue to communicate with U.S. regulators and strive to reach an agreement on China-U.S. audit supervision cooperation as soon as possible. Read full story
The speed at which Beijing has responded to this week's sell-off would suggest it does not want to let things drift out of control, said AJ Bell investment director Russ Mould in London.
"Its key goal is common prosperity and stock markets matter because a lot of Chinese retail investors have money in equities, so their wealth is at stake if shares are plummeting in value," he said.
Some analysts see Chinese stocks as a possible good long-term investment, following a torrid 2021 amid a crisis in the real estate sector and a severe regulatory crackdown on tech giants. Read full story
The MSCI China index .dMICN00000PUS was trading at a valuation discount of more than 30% to world stocks and twice as much the 20-year average discount, per Refinitiv data.- Reuters