By Alibaba, along with other Chinese names, experienced a sharp rebound on Tuesday, following a recent selloff, as investors interpreted signals that the government is prepared to bolster the stock market. However, experts warn that this upward movement could be a temporary phenomenon known as a “dead cat bounce.”
In the U.S. premarket trading on Tuesday, Alibaba’s stock rose by 4.4%, while e-commerce peers JD.com saw a 5.7% increase and Temu owner PDD rose by 4.4%. Electric-vehicle maker NIO also experienced a significant jump in stock price, rising by 5.4%.
The Hang Seng Index in Hong Kong surged by 4%, accompanied by a 3.2% advancement in the Shanghai Composite. Both benchmark indices witnessed a remarkable recovery on Tuesday after several days of extreme volatility and unfavorable trading conditions. The Shanghai Composite had closed at its lowest level since 2020 on Monday after enduring six consecutive days of losses.
Despite the gains made on Tuesday, Hong Kong stocks are still down by 5% for the year, while Shanghai equities have declined by 6%. This performance significantly lags behind the Dow Jones Industrial Average and S&P 500 in the United States, which have risen by 2% and 4% respectively during the same period.
The decline in Chinese stocks can be attributed to ongoing concerns about the stagnation of the second-largest economy worldwide. Investors lack confidence in Beijing’s ability to effectively address these economic challenges. China’s economy has witnessed a significant slowdown over the past year, failing to rebound as expected following the lifting of Covid-19 restrictions in 2023.
China’s Efforts to Prop Up Stock Market Amid Market Meltdown
The recent market meltdown has sparked a flurry of news about China’s efforts to deliver stimulus in order to stabilize the stock market. In a new development on Tuesday, a sovereign fund has joined the push to halt the market rout.
According to Joshua Mahony, an analyst at broker Scope Markets, there has been a concerted effort to halt the slide in Chinese indices, resulting in a surge. Despite ongoing concerns, traders have started to cautiously reenter the market.
While these measures have helped stocks stage a rally, investors need to exercise caution. This is not the first time that Chinese equities have experienced significant volatility based on hopes of substantial stimulus, which, thus far, have mostly fallen short of expectations.
China is grappling with structural economic problems, including ripple effects from its highly leveraged property sector and a domestic investor base that is increasingly hesitant to invest more money into the markets.
It is only in hindsight that one can determine whether a turning point has been reached from the market bottom or if it is simply a short-lived rally, often referred to as a “dead cat bounce,” that fails to materialize into sustained recovery.
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