Alibaba and other Chinese names surged on Tuesday, bouncing back after a brutal selloff in recent days as investors seized on more signs that the government will support the stock market. Beware: this could be a dead cat bounce.
Alibaba stock rose 4.4% in U.S. premarket trading on Tuesday, with shares in e-commerce peers JD.com 5.7% higher and Temu owner PDD up 4.4%. Electric-vehicle maker NIO’s stock jumped 5.4%.
Hong Kong’s Hang Seng Index rallied 4% with the Shanghai Composite advancing 3.2%. Both benchmarks tore higher on Tuesday after a number of days of volatile and mostly brutal trading, with the Shanghai Composite closing Monday at its lowest level since 2020 after a six-day losing streak.
Even after Tuesday’s gains, Hong Kong stocks are down 5% this year with Shanghai equities 6% in the red, badly trailing the Dow Jones Industrial Average and S&P 500 in the U.S., which have risen 2% and 4%, respectively, over the same period.
The force behind declines in Chinese stocks is a familiar one: deep concerns about stagnation in the world’s second-largest economy and a lack of confidence among investors that Beijing will meet these issues with sufficient support. China’s economy has faced a stark economic slowdown over the past year, a disappointment after bets on a rebound in 2023 after Covid-19 restrictions were lifted.
In the face of the latest market meltdown, recent days ushered in a flurry of news about efforts in China to deliver stimulus that will prop up the stock market, with a new development Tuesday that a sovereign fund will join attempts to stop the rout.
“Chinese indices surged on a concerted effort made to halt the slide,” said Joshua Mahony, an analyst at broker Scope Markets. “Traders have started to dip their toe back in despite ongoing concerns.”
Indeed, the latest measures are helping stocks stage a rally—but investors should take heed, because this isn’t the first time Chinese equities have whipsawed on hopes of significant stimulus, which have so far mostly disappointed.
China faces structural economic problems, including stresses rippling outward from its sprawling and indebted property sector, and a base of domestic investors that looks increasingly unwilling to sink more money into markets.
It’s only possible in hindsight to tell the difference between a turning point from the market bottom and a so-called dead cat bounce—a short-lived rally that impresses but fails to materialize into much more.