Shares in Alibaba and other Chinese companies have come under intense pressure recently.
Greg Baker/AFP via Getty Images
Shares in some of China’s largest companies notched eye-watering gains on Wednesday after news that the government would support the stock market, boost economic growth, and clear up a punishing regulatory environment.
Alibaba (ticker: BABA) stock was up 21% in premarket trading in the U.S., with its Hong Kong-listed shares tearing 27% higher. E-commerce peer JD.com (JD) saw premarket gains of 24% after jumping more than 35% in Asian trading. NetEase
surged 18% before the New York open after gaining 23% in Hong Kong.
Optimism has swept investors after China’s top administrative authority said it would work to stabilize Chinese stock markets and boost economic growth in the first quarter with “concrete actions,” state-run Xinhua News Agency reported.
Authorities will rely on monetary policy as well as new loans to achieve its goals, said the report, which was also posted on the Chinese State Council website.
The news out of China also included positive developments on the regulatory front, a welcome sign for the country’s embattled tech sector.
The Chinese government said it has maintained good communications with U.S. regulators and has been working on a cooperation plan. Alongside expressing support for overseas listings, the State Council also said authorities should “steadily advance and complete the rectification work on large platform companies as soon as possible” through transparent and predictable regulation.
The threat that Chinese stocks could be delisted in the U.S. over a lack of accounting transparency has been a major headwind for the country’s overwhelmingly foreign-listed tech sector in recent months. Regulatory scrutiny more broadly has seen the market value of companies like Alibaba crumble over the past year—the stock dropped some 50% in 2021—as Beijing cracked down on the tech sector.
The selloff in Chinese stocks, and especially U.S.-listed Chinese stocks, picked up pace in the last week. The gains for Alibaba, JD.com, and others on Wednesday mostly undo recent declines; both stocks had lost around a quarter of their value in the past five days.
Investors have fretted over a painful trifecta of pressures, including ongoing U.S. regulatory concerns, new Covid-19 lockdowns in China, and the existential risk of futures sanctions if China aids Russia in its war on Ukraine.
“Last year’s regulatory clamp-down on internet firms and other sectors soured the appeal of the region to investors,” said Russ Mould, an analyst at broker AJ Bell. “The speed at which Beijing has responded to this week’s sell-off would suggest it doesn’t want to let things drift out of control.”
For companies like Alibaba, the gains notched Wednesday could be just the beginning.
As Barron’s has previously reported, at least two key factors are required for an Alibaba turnaround: A marked improvement of the regulatory environment and a turnaround in the fundamentals of the Chinese economy and consumer spending.
If there is a well-executed follow-through of the State Council’s pledges, both of those factors could become a reality.
Write to Jack Denton at [email protected]
