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Shares of e-commerce giant Alibaba (NYSE:BABA) were up 4.4% in premarket trading. Among other large-cap Chinese internet stocks, JD.com (NASDAQ:JD) advanced 6.7% and Baidu Inc (NASDAQ:BIDU) gained 7%. Electric carmakers also rose, with Nio (NYSE:NIO) up 3.8% after China announced a 50% cut in the purchase tax for low-emission passenger vehicles.
With daily virus cases falling below 100 for the first time since March, China is letting up some Covid restriction measures. Shanghai will resume public transportation from Wednesday after being in a lockdown for two months, and Beijing is allowing some shopping centers to reopen.
While China’s factory and services sectors are still in a contraction, official manufacturing and non-manufacturing purchasing managers indexes improved in May, suggesting the worst of the current economic fallout may be nearing an end. Both metrics beat consensus estimates in a Bloomberg survey.
“The improvement of China PMIs echoed the bottoming out of high-frequency macro data since mid-May, suggesting that the worst of the Covid disruption on China’s growth could have passed,” said Jeffrey Zhang, a Hong Kong-based emerging-market strategist at Credit Agricole SA. “Better sentiment in the manufacturing sector should partially ease concerns of China’s logistics and production disruption, and bode well for the recovery of its value-chain partners.”
The Nasdaq Golden Dragon China Index, which tracks 81 Chinese stocks in the US, was down 1.1% in May through Friday’s close. Failure to reverse the loss would result in the index’s seventh monthly drop, which would mark longest such streak since at least 2001.
But optimism is returning to beaten-down Chinese stocks, with asset manager Amundi among the latest to turn more bullish on the group. Better-than-expected earnings from heavyweights including Alibaba and Pinduoduo (NASDAQ:PDD) are also propping up the sector, as companies trim losses and become more disciplined, according to Jian Shi Cortesi, a portfolio manager at GAM Investment Management.
“There were too many factors lumped together, resulting in extreme bearishness toward China equities, in particular, these ADRs,” she said. “If the bad news just stops, the market can rally.”
©2022 Bloomberg L.P.
