Why Baidu, Full Truck Alliance and Bilibili are trading higher today

Chinese stocks rose today after the People’s Bank of China (PBOC), trying to pull the Chinese economy out of its recent recession, announced better-than-expected interest rate cuts and stimulus measures.

Artificial Intelligence (AI) and Search Company Actions Baidu (BIDU 5.77%) traded nearly 5% higher, while shares of the shipping platform Full Truck Alliance (YMM 9.10%) increased by almost 9%. Meanwhile, shares of the online video platform Bilibili (BILLS 13.91%) increased by almost 13%.

Will the stimulus be enough?

Following the Federal Reserve’s 50 basis point (bps) interest rate cut last week, investors increased their bets that China would soon follow suit, but the PBOC’s announcement appeared to catch the market by surprise. China’s central bank told reporters that it plans to cut banks’ reserve requirements by 50bps soon and that there could be further declines in bank reserve requirements. Additionally, the PBOC cut the seven-day reverse repo rate by 20bps to 1.5%.

China’s central bank also adopted measures aimed at helping China’s struggling housing market. These included a 50bps cut in average interest rates for existing mortgages and a down payment to 15% for all homes. The PBOC also plans to inject funds into the capital markets, including 500 billion yuan for a program that financial companies can access to buy shares and 300 billion yuan in loans to commercial banks, which those banks they can use them to buy shares or buy back their own shares. .

“This is the biggest PBOC stimulus package since the beginning of the pandemic,” said Julian Evans-Pritchard, an analyst at Capital Economics, according to Reuters. “But on its own, it might not be enough.”

China’s economy continues to face problems, from housing problems to high unemployment. Analysts recently cut their GDP estimates for 2024 below the Chinese government’s target of 5 percent. Data on retail sales and industrial production disappointed in August.

In other, more company-specific news, analysts at City Group This morning it opened a “90-day positive catalyst monitor” on Full Truck Alliance, saying monthly user growth over the past two months gives it confidence in its future earnings results for the fourth quarter of 2024. In the note In their research note, analysts said they believe order volume could exceed 20% year-on-year growth, despite greater difficulties in the Chinese economy and the impact of a typhoon in the Yangtze River Delta. Citigroup has a buy rating on the stock and a $12 price target, implying an upside of about 50% from current levels.

Much uncertainty ahead

Many suspect that the Chinese economy will eventually turn the corner, and the stimulus announcement will certainly help. But there’s still no guarantee that will happen anytime soon, so investors may have to be patient.

I think Baidu, Bilibili and Full Truck Alliance are worth investing in. Baidu has strong AI capabilities and trades at a reasonable 12 times earnings. Bilibili has slowed its quarterly losses and the stock is up nearly 52% this year. It is very encouraging to see Full Truck Alliance users growing in a difficult economy, given that shipping is a cyclical business.

That said, Chinese stocks have more complexities, such as a more impactful regulatory landscape. So if you don’t have time to do extensive research on individual companies and the regulatory environment, but want exposure to China, an exchange-traded fund or mutual fund might be the easier game.