and other Chinese stocks rebounded on Tuesday as investors seized on signs of government support. Sentiment was also boosted by a report of mooted stimulus and the apparent scrapping of videogame rules targeted at tech giants.
The Chinese government is considering a package of measures to prop up the stock market, Bloomberg reported, citing anonymous sources. Plans involve mobilizing 2 trillion yuan ($282 billion) from offshore accounts of state-owned enterprises to buy shares in Hong Kong, as well as using 300 billion yuan of local funds to invest in onshore shares, the report said.
The Shanghai and Hong Kong stock markets have slumped over the past year amid a slowdown in the world’s second-largest economy, with China racked by weak manufacturing, deflation, and under pressure consumers. That’s to say nothing of stress in the sprawling and indebted Chinese property sector, which has threatened to spill over into the wider financial system.
Hong Kong’s
surged 2.6% on Tuesday, with the Hang Seng Properties index rallying 2.8%. Widely held Chinese tech stocks advanced in U.S. premarket trading, with shares in Alibaba up 1.3% and
gaining 3.1%.
More good news for investors in China came from another source: the country’s gaming regulator may have scrapped draft rules proposed last month that would crack down on spending made through videogames. The link to draft rules on the regulator’s website was removed as of Tuesday, having worked on Monday, Reuters reported, citing its own checks. Barron’s could not access the National Press and Publication Administration site on Tuesday.
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Shares in Tencent and NetEase—China’s largest videogame developers—surged, with
stock rising 3.7% in Hong Kong trading and
shares up 3.2% in the U.S. premarket.
While it remains possible that Chinese regulators are merely revising draft rules, the reaction in the stock market suggests a more optimistic take. Indeed, easing the regulatory backdrop for beaten-down tech companies, and supporting stocks directly through purchases, may be the path forward as Chinese officials seek to calm investors and shore up support for the country’s markets.
China has shown some resistance to Western-style, consumption-led stimulus, and on Monday the country’s central bank held back from cutting interest rates—which would have been a fast route to growth—in an apparent bid to limit further borrowing.
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But investors beware: Chinese stocks have whipsawed for months on end on rumors of stimulus, with concrete plans so far largely disappointing markets. Stocks like Alibaba plunged on Monday in the wake of the latest central bank decision, and were rallying on Tuesday after the latest reported stimulus plan and apparent move on tech rules.
These incremental updates do little to change the bigger picture: that investing in China remains risky, despite the appearance of Chinese stocks as being very cheap—and a lot of smart money is holding back, for now.
Write to Jack Denton at [email protected]
