Chinese Firms Surge On Stimulus ReportsJan 25, 2024
New considerations could inject as much as $280 billion into the struggling Chinese economy
According to a new report out of Bloomberg, the Chinese government is gearing up to initiate a massive stimulus of their economy after reopening efforts stalled out. Tech stocks are ripping, let’s break it down:
Initial plans for this stimulus would rely on 2 trillion Yuan (around $280 billion) that’s held in offshore accounts to boost spending and get growth back on track. It would also utilize another 300 billion Yuan of local funds within China.
While these are just reports for now—even a hint at this level of stimulus has been enough to send shares of major Chinese companies soaring in foreign markets.
Tech firms are pushing even higher thanks to an additional report that the government arm focused on gaming has removed language describing new draconian gaming regulations from their website. Last month, the Chinese government kneecapped tech stocks like Tencent and NetEase with extremely harsh new curbs on gaming revenue.
There were already scattered mentions that these rules would be softened—but scrubbing them entirely from the internet is an even better sign.
WHY IT MATTERS
While this seems great at a glance, this isn’t the first time Chinese stocks have popped in response to stimulus rumors. Also, given how much the Chinese economy is struggling to restart—a confirmed stimulus may not be enough to fully re-engage the economic engine over there. In the short term, it’s a great sign that the government is moving quickly to try new methods of stimulus, but most investors should still be super cautious about investing in Chinese firms. Despite that, big tech firms like Alibaba popped in the single digits as trading in Western markets kicked off.