Chinese stocks saw another day of gains on Tuesday, as Beijing implemented stimulus measures to boost capital markets. Although short-term gains are encouraging for companies like Alibaba, a sense of uncertainty still looms over China's long-term economic outlook.
U.S.-listed shares of e-commerce giant Alibaba (BABA) rose by 0.7% in premarket trading on Tuesday, following a 2.7% increase on Monday. JD.com (JD), a major competitor, also experienced a similar trend, with a premarket surge of 1.2% after a 2.6% jump on Monday. Electric car manufacturer Nio (NIO) followed suit, rising 1.4% in premarket activity following a 1.8% lift the previous session.
The positive performance of widely held Chinese tech stocks reflects an optimistic day of trading in Asia, with the Hang Seng Index in Hong Kong advancing 2%, the Shanghai Composite surging 1.2%, and Tokyo's Nikkei 225 moving 0.2% into positive territory.
These two days of gains in China can largely be attributed to the pro-stock market stimulus implemented by Beijing. Over the weekend, the Chinese government announced its decision to reduce the stamp duty on securities transactions by half, from 0.1% to 0.05%—marking the first such cut since 2008. Additionally, other measures were introduced to invigorate capital markets.
The market response to these stimulus measures indicates cautious optimism among investors, but concerns regarding the broader economic landscape of China persist. Despite recent improvements, it remains to be seen how sustainable this upward trajectory will be for Chinese stocks in the long run.
Boosted Sentiment in China's Economy Raises Questions
According to Susannah Streeter, an analyst at broker Hargreaves Lansdown, the recent boost in sentiment due to extra help in China's economy is temporary. There are underlying concerns about the fragility of China's economy that still need to be addressed.
The actions taken by Beijing appear to be more focused on providing short-term stimulus to the stock market rather than implementing long-term measures to strengthen the world's second-largest economy. The global markets have been affected by China's economic slowdown, which has also impacted widely held stocks.
While the government has introduced some stimulus measures and has hinted at more to come, investors remain skeptical about whether these efforts will be sufficient to reverse the decline in growth and address the distress in the property sector, which poses a threat to the overall financial system.
Companies like Alibaba and JD.com, which heavily rely on the Chinese consumer market, will require more significant stimulus measures, if any, in order to achieve long-term gains in their stocks.
Despite these concerns, investors continue to celebrate the short-term boost in sentiment.
