Why shares of XPeng, Li Auto and even Cleveland-Cliffs rose this week

Chinese stocks rose this week. This came after China’s central bank initiated new stimulus packages and followed the US Federal Reserve’s 50 basis point cut in interest rates last week. China’s central bank didn’t just act on interest rates.

It continued to support business and consumer activity by cutting interest rates on existing mortgages and the reserve requirement ratio for banks by 50 basis points. The latter will release significant amounts of money for loans. Government leaders watched the bank moves, showing support for the economy and the stock market. All of this has boosted shares of China’s electric vehicle (EV) makers listed on US exchanges.

That included XPeng (XPEV 7.67%) and Li Auto (LI 2.52%)which were up 27.4% and 17% respectively for the week as of Friday morning, according to data provided by S&P Global Market Intelligence. Investors also boosted the US steelmaker’s stock Cleveland-Cliffs (CLF 2.40%) higher by 10.4%. While this may not seem related, it is also in an important way that US investors should be aware of.

China still matters

When the world’s second-largest economy unveiled a bigger-than-expected stimulus package, it mattered to global investors. Especially after Chinese leaders followed the bank’s actions with comments that it would work to boost fiscal and monetary policies to help Chinese citizens and achieve its annual growth target of 5 percent.

That has ramifications beyond China. If China reignites strong growth, that’s great for EV makers like XPeng and Li Auto. Both are expanding their vehicle lineups and increasing sales. Year to date, through August, XPeng has shipped more than 77,000 electric vehicles, representing a 17% year-over-year jump. Last month, it initiated its deliveries adze Model 3’s rival, the Mona M03 sedan. This is one reason City Group Analysts just raised the company’s price target on XPeng shares and why they believe vehicle sales can nearly double over the next two years.

Li Auto is also experiencing rapid growth and may benefit from a rebound in China’s economy. Li delivered more than 20,000 vehicles in August, the third month in a row to exceed that level. The company noted strong interest among young families for its L6 premium SUV. More incentives will likely encourage even more buyers.

The impacts are global

Steel is needed to make these machines. But investors may wonder why a US steelmaker like Cleveland-Cliffs would be hurt by Chinese demand. Because China is the largest steel producer in the world. And because many manufacturers are sponsored or controlled by the state, those mills often produce even when there is no local demand. That steel is then exported, often at prices that undercut foreign supply.

Cleveland-Cliffs and other U.S. steelmakers have faced falling prices this year, in part for that reason. Improving domestic demand in China will reduce its exports, which will support global prices.

Forward-thinking investors bought names like Cliffs this week, anticipating better financial results in the coming quarters. The top two global economies both appear to be heading for growth, which has boosted these stocks this week.