Why Are Chinese Stocks NIO, Tencent And Alibaba Rallying Today?

Chinese-related stocks experienced a robust surge on Tuesday’s trading session following Beijing’s announcement of significant efforts in stimulating the world’s second-largest economy.

Leading the charge were notable Chinese-based companies traded in the U.S. market like NIO Group Inc. NIO, Li Auto Inc. LI, Tencent Music Entertainment Group TME, Alibaba Group Holdings Ltd. BABA, PDD Holdings Inc. PDD, and Baidu Inc. BIDU, all of which posted daily gains ranging from 3% to 7% during midday trading in New York on Tuesday.

China’s economy had been grappling with a slowdown triggered by the real estate market’s collapse and deflationary pressures. Faced with these challenges, President Xi Jinping determined it was time for decisive action. To meet the ambitious 5% growth target set by the government’s strategic plans, Xi initiated measures to stimulate the stagnating economy.

China Raises Fiscal Deficit Ratio

One of the key strategies adopted to fuel China’s economic growth is the rise in the fiscal deficit. This adjustment could take the form of increased public spending or tax reductions, facilitated through the issuance of new government bonds.

According to Bloomberg, China’s legislative body recently approved a plan to raise the fiscal deficit ratio for 2023 to approximately 3.8% of the gross domestic product. This figure significantly surpasses the 3% limit set in March, a threshold that the government traditionally considered a cap for the nation’s deficit.

As part of this plan, the Chinese government intends to issue an additional 1 trillion yuan (approximately $137 billion) in sovereign debt during the fourth quarter.

Mark Williams, the chief Asia economist at Capital Economics Ltd., stressed the importance of the substantial fiscal support approved today to prevent a potential tightening of China’s fiscal policies by year-end.

Citigroup economists also pointed out that exceeding the usual debt-to-GDP target could signal a heightened sense of urgency among policymakers as they work toward their growth objectives.

Goldman Sachs analysts predict that policy easing is likely to persist through the fourth quarter and the upcoming year. This is because China won’t benefit as much from Covid-related reopening, making it crucial for the government to maintain economic momentum through well-planned fiscal measures.

The iShares China Large-Cap ETF FXI was 2.9% on Tuesday, marking the best-performing session in over a month and outperforming major U.S. equity ETFs such as the SPDR S&P 500 ETF Trust SPY, up 0.5%, and the Invesco QQQ Trust QQQ, up 0.6%.

Read Now: Hong Kong’s Kingboard Sucked Into China’s River Of Property Defaults