Alibaba stock and other Chinese shares surged on Tuesday, bouncing back after a brutal selloff in recent days as investors seized on more signs that the government will support the market. Beware: this could be a ‘dead cat bounce.’
Alibaba
stock rose 2.6% in U.S. premarket trading on Tuesday, after gaining 3.9% on Monday, while shares in e-commerce peers
JD.com
5.2% higher, Temu owner
PDD
up 3.9%, and
Baidu
up 3.6%. Electric-vehicle maker
NIO’s
stock jumped 5.4%.
Hong Kong’s
Hang Seng Index
rallied 4% with the
Shanghai Composite
advancing 3.2%. Both benchmarks tore higher on Tuesday after a number of days of volatile and mostly brutal trading, with the Shanghai Composite closing Monday at its lowest level since 2020 after a six-day losing streak.
Even after Tuesday’s gains, Hong Kong stocks are down 5% this year with Shanghai equities 6% in the red, badly trailing the
Dow Jones Industrial Average
and
S&P 500
in the U.S., which have risen 2% and 4%, respectively, over the same period.
The force behind declines in Chinese stocks is a familiar one: deep concerns about stagnation in the world’s second-largest economy and a lack of confidence among investors that Beijing will meet these issues with sufficient support. China’s economy has faced a stark economic slowdown over the past year, a disappointment after bets on a rebound in 2023 after Covid-19 restrictions were lifted.
In the face of the latest market meltdown, recent days ushered in a flurry of news about efforts in China to deliver stimulus that will prop up the stock market, with a new development Tuesday that a sovereign fund will join attempts to stop the rout.
“Chinese indices surged on a concerted effort made to halt the slide,” said Joshua Mahony, an analyst at broker Scope Markets. “Traders have started to dip their toe back in despite ongoing concerns.”
Indeed, the latest measures are helping stocks stage a rally—but investors should take heed, because this isn’t the first time Chinese equities have whipsawed on hopes of significant stimulus, which have so far mostly disappointed.
China faces structural economic problems, including stresses rippling outward from its sprawling and indebted property sector, and a base of domestic investors that looks increasingly unwilling to sink more money into markets.
It’s only possible in hindsight to tell the difference between a turning point from the market bottom and a so-called dead cat bounce—a short-lived rally that impresses but fails to materialize into much more.
Write to Jack Denton at jack.denton@barrons.com
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