China's Surprise Stimulus Takes U.S.-Listed Stocks and EV Makers Higher
China's Surprise Stimulus Takes U.S.-Listed Stocks and EV Makers Higher
The People’s Bank of China has injected liquidity into markets, but the effort may fall short
China cuts the reserve ratio requirement by 50 basis points, exceeding expectations.
The move will inject $142 billion into the Chinese economy.
Chinese-listed U.S. stocks rallied today after the move.
Electric vehicle makers Nio and Zeekr are seeing big gains.
Overnight, China cut its reserve ratio requirement (RRR) by 50 basis points (bps), marking its largest stimulus effort since the COVID-19 pandemic.
The move surprised the market because investors had dulled their hopes for a major stimulus package after several letdowns over the past year from The People’s Bank of China’s (PBOC). The RRR cut is the newest and most aggressive effort by the Chinese central bank’s policymakers to revive its struggling economy.
China’s equity markets responded positively to the move on Monday, with the CSI-300 and Hang Seng Index (HSI) rallying over 4% each. Those were the biggest daily percentage gains since July 2020 and March 2023, respectively.
U.S. listed Chinese stocks rally in reaction
U.S.-listed Chinese equities rallied in response on today, with high-profile names posting big gains through afternoon trading.
Alibaba Group Holding (BABA), the Chinese e-commerce company, made a nearly 8% gain on today, pushing the stock price to the highest level since August 2023.
JD.com (JD) did even better, surging over 13% just ahead of the New York close today. The move put the stock at the highest point since May.
Both JD and BABA rose on higher-than-average volume, reflecting the upbeat sentiment surrounding China-listed U.S. equities.
The move from the PBOC, along with the recent interest rate cut from the Federal Reserve, is seen as a net benefit for not only Chinese stocks but also U.S. equity markets. The Nasdaq rose today and held its gains going into the close. The Nasdaq did the same.
U.S.-listed Chinese EV makers surge
Chinese electric vehicle companies also joined the party on Tuesday.
Nio (NIO), the Chinese electric vehicle maker, surged over 10% today through afternoon trading. The move put Nio at the highest level traded since May.
Zeekr (ZR), another Chinese electric vehicle company, rose over 9%, reflecting the brightening view of investors in the electric vehicle space.
Copper prices (/HGZ4) rose 4% after the news of China’s stimulus measures crossed the wires. Copper is seen as one of the key ingredients for electric vehicles and is used by investors as a proxy play on the electrification of vehicles and the broader “green” trade.
The outlook for China remains dim, however. While the stimulus measures were cheered by markets there are still a lot of concern about the Chinese economy—the main one is tepid credit demand. Some analysts fear looser credit qwon’t help the demand side of the Chinese economy. Altogether, it’s a positive story but the outlook remains a cautious one.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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