What happened
Shares of several Chinese stocks dropped Tuesday on weak economic data and as tensions between the U.S. and China continued to ratchet up.
Shares of the video platform Bilibili(NASDAQ: BILI) were trading roughly 3.6% lower as of 11:30 a.m. ET, shares of the live-streaming company Huya(NYSE: HUYA) traded 3.7% lower, and shares of online tutoring company New Oriental Education & Technology Group(NYSE: EDU) were down by about 7.5%.
So what
Beijing has relaxed its "zero COVID" policies and ended its strict lockdowns in an effort to get China's economic growth back on track, but amid conflicting data, there has been a lot of debate about whether or not it can bounce back as fast as investors hope.
Image source: Getty Images.
So far, it's been an up-and-down ride, but recent data showed that Chinese imports fell by 10.2% in the first two months of 2023 on a year-over-year basis, while exports were down by 6.8%. Chinese officials have said they hope for economic growth of 5% this year, which is China's lowest annual target in several decades.
"Either reopening has yet to provide much support to import demand, perhaps because many consumer-facing services are not import intensive, or any boost has been offset by a further drop in imports for processing and reexport," said Julian Evans-Pritchard, a senior economist focusing on China at Capital Economics, according to the Financial Times.
In other news, relations between China and the U.S. continue to grow tenser. Earlier Tuesday, China's President Xi Jinping said the U.S. and other Western nations have constantly tried to deter development in China.
Xi also announced moves to restructure the organization of China's government in what looks to be part of a broader effort to win the technology war going on between China and other developed countries.
This restructuring includes setting up a new financial regulator, repositioning the Science and Technology Ministry to better accomplish the government's goals, and setting up a new government body to better protect data.
The Biden administration has in recent months enacted rules that prevent Chinese companies from obtaining certain advanced equipment for chipmaking. All of this tension may make foreign investors cautious when it comes to investing in Chinese stocks.
Now what
I am of the view that the Chinese economy is set to rebound, and will likely outperform most other global economies that are facing tougher backdrops. That should favor Chinese stocks, but the unavoidable question here, as always, is how much will regulation from Beijing or geopolitical tensions impact those companies. Those factors will continue to have an outsize impact on their share prices.
I see really good potential for all three of these companies, but I expect their shares will continue to be volatile, so if you are thinking of investing, be prepared for that. It would also be helpful to really study the regulatory landscape in which each company operates, considering how big an impact regulation is having on their businesses.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Bilibili. The Motley Fool has a disclosure policy.
