Why Chinese stocks are higher today

Another day and more Chinese stock news. The group rose after Chinese leaders pledged additional support for the Chinese economy following a surprise meeting on Thursday.

Fast food company shares Yum China (YUMC 13.62%) it was up 20% this morning before giving away some of those gains. Meanwhile, shares of the e-commerce company PDD Holdings (PDD 13.65%) and the search engine and artificial intelligence company Baidu (BIDU 8.37%) rose about 15% and 12%, respectively, this morning before giving back some of the gains.

Supporting support

Since Tuesday, China’s central bank has launched a series of stimulus measures and interest rate cuts to try to lift China’s struggling economy and hopefully revive its target gross domestic product growth rate of 5%. government this year, which analysts are now worried about. These measures include lowering reserve requirements at banks so they have more capacity to lend, lowering interest rates and down payment requirements on mortgages, and injecting capital into China’s financial companies so they can invest more, either in shares or even to buy back their own shares. .

While the measures certainly sparked optimism, the rally stalled yesterday on fears that interest rate cuts and stimulus may not be enough to pull China out of the crisis. The economy is facing a housing crisis, deflationary concerns, high unemployment and weak consumer demand.

In an unexpected Politburo meeting today, the committee, which is chaired by President Xi Jinping, reportedly said: “We should increase the intensity of the countercyclical adjustment of fiscal and monetary policies.” The Politburo also said it plans to issue government bonds to support the “driving role of government investment.”

The Politburo is considered the main policy-making committee composed of high-ranking officials and charged with directing the country’s political, economic and social priorities. Which is what made this particular meeting interesting, according to analysts at Morgan Stanleyis that the Politburo does not usually meet in September, which suggests “a heightened sense of urgency.”

Investors appear to be flocking around China after a difficult year so far for the group. Conformable Goldman SachsChinese stocks posted their most daily net inflows in about 3.5 years on Tuesday and the second most in a decade.

The group received another shot of confidence this morning from one of the world’s top investors. Billionaire investor David Tepper told CNBC that he would recommend buying “everything” in China, from exchange-traded funds (ETFs) to futures. He said he had become increasingly bullish from the time the Federal Reserve cut interest rates last week to China’s first stimulus announcement and rate cut to the latest Politburo news.

Understanding the landscape

As I’ve been saying for the past few days, Chinese stocks operate in a much different landscape than US stocks. The government has more influence and the economy does not always move in the same direction as other global economies. As you can see today, the sector is almost benefiting more from the promised support from the Chinese government than from the actual stimulus measures announced earlier this week.

Stocks like Yum, PDD and Baidu should see good growth if China can get the economy going, as consumers will have more money to spend on dining out, benefiting companies like Yum and more money to buy offshore products consumption, benefiting companies like PDD. It’s also worth noting that all three of these companies trade at much more reasonable multiples than their US peers, which generate similar levels of growth.

But if you don’t have time to do significant due diligence on each of these companies and how China’s economic pressure and regulatory landscape might affect them, and you still want some exposure to China, I’d recommend investing in an ETF who owns a basket of Chinese. stocks.