Chinese Stocks Rebound as Government Support Emerges

by Warren Seah

The Chinese stock market and particularly Alibaba witnessed a resurgence on Tuesday, driven by investor optimism fueled by signs of government support. Market sentiment was further bolstered by reports of potential economic stimulus measures and the apparent abandonment of video game regulations targeting tech giants.

Chinese Government Contemplates Measures to Revitalize Stock Market

According to Bloomberg, anonymous sources have revealed that the Chinese government is mulling over a comprehensive package of measures aimed at propping up the stock market. As part of these plans, approximately 2 trillion yuan ($282 billion) from offshore accounts of state-owned enterprises will be mobilized for the purpose of purchasing shares in Hong Kong. Additionally, around 300 billion yuan of local funds will be utilized to invest in onshore shares.

Economic Challenges Plague Chinese Financial Markets

Over the past year, both the Shanghai and Hong Kong stock markets have experienced significant downturns due to a variety of economic hardships faced by China, the second-largest economy globally. Factors such as weak manufacturing, deflation, and a decline in consumer spending have contributed to this downward spiral. Moreover, concerns have been raised about the deeply indebted Chinese property sector, which poses risks of contagion to the broader financial system.

Investors Rejoice: Hang Seng Index Soars

Hong Kong’s Hang Seng Index surged by a remarkable 2.6% on Tuesday, signaling a positive turn for investors. The Hang Seng Properties index also experienced a commendable rally, gaining 2.8% in the process. Furthermore, Chinese tech stocks, including Alibaba and, demonstrated strength during U.S. premarket trading, with Alibaba’s shares showing an increase of 1.3% and seeing an impressive gain of 3.1%.

Regulatory Relief for Chinese Gamers

In another welcome development for investors, it appears that the country’s gaming regulator may have abandoned the draft rules proposed last month to regulate spending within video games. Reuters reported that the link to the draft rules on the regulator’s website vanished on Tuesday, after being accessible on Monday. Unfortunately, access to the National Press and Publication Administration site was not available for verification.

Surge in Shares of Chinese Videogame Developers

Shares in Tencent and NetEase, two of China’s largest videogame developers, have experienced significant surges. Tencent’s stock rose by 3.7% in Hong Kong trading, while NetEase shares went up by 3.2% in the U.S. premarket.

This surge in stock prices suggests that investors remain hopeful, even amidst potential revisions to draft rules by Chinese regulators. It appears that Chinese officials are aiming to ease the regulatory environment for struggling tech companies, providing direct support through stock purchases. This strategy is an effort to alleviate concerns among investors and bolster support for the country’s markets.

Despite these efforts, China has shown resistance to implementing Western-style, consumption-led stimulus measures. On Monday, the country’s central bank refrained from cutting interest rates, which might have quickly fueled economic growth. This decision indicates an intention to restrict further borrowing.

However, investors should exercise caution as Chinese stocks have been volatile for a prolonged period due to rumors of stimulus measures. Concrete plans have largely disappointed markets thus far. For example, stocks like Alibaba experienced a significant drop in response to the latest central bank decision but rebounded on Tuesday following reports of a new stimulus plan and potential changes to tech regulations.

It is essential to recognize that the broader picture remains unchanged. Investing in China continues to carry significant risks, despite the seemingly low valuations of Chinese stocks. Consequently, many savvy investors are currently adopting a wait-and-see approach.

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