Why Dada Nexus Stock Won Again Today

Roughly a week after the People’s Bank of China announced a surprise 50-basis-point interest rate cut, the rally in battered Chinese stocks continues today.

Momentum from last week’s earnings, fear of missing out on the rally and a rally in Chinese indices during China’s trading session were lifted Dada Nexus (DAD 3.04%)although a morning pop disappeared during the trading session.

As of 11:52 a.m. ET, shares of Dada Nexus were up 5% on the news, after gaining as much as 15.5% earlier in the session.

Image source: Getty Images.

Will China’s momentum last?

Today’s gains came as traders set positions ahead of the week-long holiday that starts tomorrow and appear to be a continued response to last week’s heartening stimulus package.

The Shanghai composite rose 8.1 percent during Monday’s session, and other Chinese indexes posted their best one-day performance since 2008.

Also fueling the rally was news that China’s central bank will tell banks to lower mortgage rates on existing home loans, a move aimed at helping China’s long-simmering housing market.

Dada Nexus specializes in retail and on-demand delivery and works closely with JD.comwho owns a majority stake in the company.

There hasn’t been much company-specific news about Dada Nexus in the past week, but JD.com shares have rallied, with investors optimistic that China’s largest online retailer will resume growth now that Beijing is more lenient.

JD.com, on the other hand, earned a price target increase from $41 to $52 from City Group and has a buy rating on the stock.

What’s next for Dada Nexus?

China has long been an unpredictable market for investors, and the recent rebound seems to fit that pattern, as it is unclear how much of an impact the stimulus package will have.

Some exposure to China could pay off, but investors should maintain a diversified portfolio if they want to invest there, as the economy is still weak and US chip export restrictions could put additional pressure on China. In other words, there is still a lot of risk in China stocks.