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Overseas-listed Chinese stocks rise as Beijing allays worries

FILE PHOTO: A man walks past an Alibaba Group logo at their Beijing office building
FILE PHOTO: A man walks past an Alibaba Group logo at its office building in Beijing, China, August 9, 2021. REUTERS/Tingshu Wang

March 16, 2022

By Danilo Masoni, Tiyashi Datta and Caroline Valetkevitch

(Reuters) – Overseas Chinese stocks rallied on Wednesday after Beijing pledged to keep markets stable, calming the nerves of foreign investors after a sell-off on worries over China-West differences in the Russia-Ukraine war .

Comments by China’s Vice Premier Liu He that Beijing would support the economy and keep markets stable sparked a rebound from 21-month lows for local stocks and fueled a rally for US- and Europe-listed Chinese stocks.

In U.S. trading, JD.com is up 39.4%, Alibaba is up 36.8% and Pinduoduo is up 56.1%, marking the biggest-ever daily percentage gains for these stocks. They fell to a multi-year low during Tuesday’s sell-off. Exchange-traded fund iShares MSCI China rose 20.9%.

Similarly, gaming company NetEase is up 25.7%, online video platform IQIYI is up 50%, music streaming company Tencent Music is up 29.3%, and mobile game publisher Bilibili is up 47.6% Chinese tech giant Tencent also rose sharply.

“It was a complete surprise to the market that (China) was even thinking about it,” said Rick Meckler, a partner at Cherry Lane Investments, a family investment firm in New Vernon, New Jersey. “That’s what made the rally so strong.”

Still, “there’s going to be a discount for all these stocks for a while,” he said, citing JPMorgan Chase’s recent downgrade. Earlier this week, JPMorgan Chase & Co downgraded 28 Chinese stocks listed in the United States and Hong Kong.

“There is a need to catch up here. It’s not enough for a Chinese official to say something really positive,” Meckler said.

Citibank’s Asia-Pacific trade strategist in Hong Kong, Mohammed Apabhai, compared the moment to the Federal Reserve’s market backstop in 2020 or then-ECB President Mario Draghi’s speech that contained the eurozone crisis in 2012 .

“It’s not quite on that scale, but it’s not that far off either,” he said. “It seems like China has realized that it needs to do something to support the economy, something right.”

Chinese stocks have come under heavy selling pressure over the past few days. Hong Kong stocks fell to a six-year low on Tuesday.

“Although it’s still a volatile and somewhat opaque market, I think this is the right moment to look at Chinese equities as valuations are good and macro data is recovering,” said Giuseppe Sersale, fund manager at Anthilia in Milan .

The Frankfurt-listed depositary receipts for Alibaba were among the most traded stocks on the Tradegate and Lang & Schwarz platforms, indicating interest from German retail investors.

According to Vanda Research, which tracks retail flows, appetite for Chinese ADRs has increased the most since September 2021, with net purchases topping $500 billion in the last 10 trading sessions, the highest level in over six months.

Separately, China’s Securities and Exchange Commission said it will continue to communicate with US regulators and seek to reach an agreement on China-US cooperation on audit oversight as soon as possible.

The speed with which Beijing has reacted to this week’s sell-off suggests it doesn’t want to let things get out of hand, Russ Mold, investment director at AJ Bell, said in London.

“Their main goal is shared prosperity, and stock markets are important because many Chinese retail investors have their money in stocks, so if the value of stocks goes down, their wealth is at stake,” he said.

Some analysts see Chinese stocks as a possible good long-term investment after a hot 2021 amid a crisis in the real estate sector and tough regulatory crackdown on tech giants.

The MSCI China Index was trading at a valuation discount of more than 30% to world equities and twice the 20-year average discount, according to Refinitiv data.

(Reporting by Danilo Masoni in Milan and Tiyashi Datta in Bengaluru and Caroline Valetkevitch in New York; Editing by Louise Heavens and Lisa Shumaker)

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DUSTIN JONES

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