Chinese stocks pull a sharp u-turn with new market policies

Yesterday, China’s top economic official announced plans to boost the economy and introduce favorable market policies. Panic selling of US-listed Chinese stocks quickly became panic buying.

What’s the big deal? Nearly two years ago, China moved towards regulating internet companies, weeding out corruption and moving away from capitalism — spelling turmoil for Chinese markets.

But slowing growth, falling credit and record outflow from government bonds — is causing China to backpedal on its plans.

In one swoop, China addressed the three main concerns plaguing stocks — announcing intentions to:

• Complete the crackdown on big tech “as soon as possible”.
• Support overseas stock listings.
• Resolve risks around its property developers.

Addressing the elephant: China and Washington are creating a plan around delisting concerns — per Xinhua report — a major cause of  Chinese stocks tumbling in recent weeks.

“They made it clear that China will solve the delisting issue for tech companies in the US” per Ming Liao of Prospect Avenue Capital (via FT).

The KraneShares CSI China Internet ETF (NYSE:KWEB) jumped 40% on the news with nearly all industries rising:

• Electric vehicles: Nio (+25%), XPeng (+29%) and Li Auto (+32%).
• Internet: Alibaba (+37%), Didi (+42%) and Pinduoduo (+31%).
• Financials: Futu Holdings (+39%), UP Fintech.

Zooming out: This is a big step towards reaching a bottom but investors have to be cautious:

• Chinese internet stocks are still down 63% in the past year and it is unclear how these policies would be implemented.
• “I do not believe this is a turning point — we are in a very turbulent period” — Per Sean Dwbow, CEO of Eurizon Capital Asia (via BBG).