What happened
Shares of many Chinese stocks rebounded this week after seeing positive economic data and as some companies reported earnings results as well.
For the week, shares of the digital freight company Full Truck Alliance(NYSE: YMM) traded more than 17% higher as of noon ET, according to data from S&P Global Market Intelligence. Meanwhile, shares of the online tutoring company Gaotu Techedu(NYSE: GOTU) traded close to 28% higher, while shares of the Chinese beauty company Yatsen Holding(NYSE: YSG) were up roughly 19%.
So what
The Chinese economy was plagued in 2022 by lockdowns across major cities that were meant to slow the spread of COVID-19. But those lockdowns also pushed people inside for weeks and months, grinding economic activity to a halt.
Image source: Getty Images.
Since then, the Chinese government has removed many of its "zero-COVID" restrictions and instituted more friendly economic policies in an attempt to boost economic growth. While things got off to a slow start this year, recent economic data showed that the Chinese economy is rebounding, and perhaps at a faster pace than many expected.
New data this week showed that China's Manufacturing Purchasing Managers Index (PMI) rose to 52.6 in February, which is up 2.5 points from January. The PMI came in above estimates and is at the highest the index has reached since April 2021.
Said UBS Global Wealth Management's Chief Investment Officer Mark Haefele:
Strong PMI readings confirm the sustained recovery we've anticipated through higher frequency data. We expect the January-February activity data due in mid-March to confirm the strength of the rebound from the fourth-quarter trough. While equity optimism has come off in recent weeks, we think the rally is not done -- with the recovery to continue on improving consumption and resilient investment.
In other news, Gaotu Techedu reported its earnings results for the fourth quarter of 2022 earlier this week. Gaotu reported a small profit of $0.04 per American depositary share on net revenue of about $91.3 million.
Gaotu's CEO Larry Xiangdong said in an earnings statement: "We delivered a decent set of results in the fourth quarter of 2022. We achieved steady quarter-over-quarter revenue growth for the third consecutive quarter, and demonstrated our superior operational efficiency with a sizable net operating cash inflow."
Gaotu also provided guidance for the first quarter of 2023, saying that it expects to generate net revenues of more than $102 million at the high end of its range.
Now what
A resurgence of Chinese economic growth could be very good for heavily beaten-down Chinese stocks, especially because many other global economies such as the U.S. aren't expecting to see strong economic growth in 2023. This may attract more investment in Chinese stocks.
I tend to prefer larger Chinese stocks with slightly less volatility, which is why my favorite in this group is Full Truck Alliance. I would expect the digital freight platform to benefit from economic expansion and no more lockdowns.
That said, I acknowledge that strong economic growth in China is going to benefit much of the sector this year, so I'd pay attention to further data supporting economic recovery.
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