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Jonathan

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The largest Chinese stocks trading in the United States staged a comeback rally Tuesday after upbeat earnings reports and relative recent calm in Chinas murky regulatory environment, but with the groups top 10 stocks still down nearly $315 billion since officials in Beijing started raising antitrust and privacy concerns this year, experts are undecided whether the sectors staggering losses could finally abate or are likely to continue.

Alibaba Founder Jack Ma attends an awards show in Sanya, Hainan province, China.

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Key Facts

Heading up the Tuesday gains, shares of e-commerce juggernaut Pinduoduo skyrocketed 19% to $96.80 by 2:15 p.m. EDT after the company posted its first quarterly profit alongside sales that jumped to $13.6 billion, nearly 90% higher than the same quarter in 2020.

Shares of fellow ecommerce firm JD.com also soared thanks to a better-than-expected earnings report Monday, surging 13% to $9.18 after CEO Lei Xu called Chinas recent crackdown on antitrust concerns a good thing for the long-term and [for the] healthy development of the industry.

Alongside Alibaba, which surged 7%, the trio of Chinese e-commerce companies gained more than $65 billion in market value on U.S. exchanges Tuesday, but theyre still between 14% and 41% lower each this year.

Investors are keen to capitalize on last weeks sell-off, Oanda Senior Market Analyst Craig Erlam wrote in a Tuesday email, pointing to further market optimism stemming from Chinas success in containing its recent Covid-19 outbreak, with no new local cases reported in the nation on Monday.

The Tuesday rally boosted virtually every sector, with ride-hailing app DiDi Global, Internet giant Baidu and biotech firm Beigene (the only top 10 Chinese stock not down in the U.S. this year) soaring 12%, 9% and 6%, respectively.

All told, the 10 largest Chinese companies trading on U.S. exchanges added back a staggering $83 billion in market value on Tuesday, but the groups total market capitalization, now roughly $945 billion, is still off by about $314 billion this year.

Tangent

Ark Invests Cathie Wood was among institutional investors buying the recent dip in Chinese stocks, snapping up about $12 million in JD.com shares after the companys second-quarter earnings beat on Monday, according to Arks daily trade reports.

What We Dont Know

Whether or not the sell-off is over—or how long it could last. “We had this in 2018, 2015 and 2011, and it’s unrelated to the economic cycle—it’s related to China’s regulatory and reform campaigns,” Gabriela Santos, a global market strategist at JPMorgan Chase said Saturday on Bloomberg Television. “It takes time to rebuild confidence, but three months out Chinese equities tend to trend up.” The Nasdaq Golden Dragon China Index, which tracks U.S.-listed firms based in China, plunged nearly 35% in 2018 as China formed its cyberspace authority to help regulate big tech, but then took about a year to recoup losses. It plunged to its lowest level in more than a year on Thursday and is down nearly 46% from a February high.

Key Background

Over the past year, China has introduced harsh regulations targeting wide swaths of its economy and sparked one of the countrys biggest stock sell-offs this century. Mounting investor concerns came to a head last week after President Xi Jinping vowed to redistribute wealth in the nation by regulating excessively high incomes. Earlier this month officials released a sweeping five-year blueprint for an antitrust-focused crackdown, covering virtually every sector in its market. Then, Chinas market regulators last week published a long list of draft rules targeting tech companies, barring them from using data to influence consumer choices and traffic hijacking activities, among other things.

Chief Critic

The fear with more regulation in China around the corner is a major worry that is hard for investors to digest, Wedbush analyst Dan Ives said in a Thursday note, warning Beijings five-year regulatory crackdown isnt going to let up anytime soon and forecasting the headwinds could boost U.S. tech stocks over the next year. 

Further Reading

US-Listed Chinese Stocks Have Lost Another $150 Billion In Market Value This Week As Beijing Targets Excessive Wealth (Forbes)

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Jonathan

Im a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism

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