This has been an excellent day for Nio (NYSE:NIO) so far. The Chinese electric vehicle (EV) producer had spent the week on a volatile, downward trajectory. Today has brought good news from China’s government, though, boosting many Chinese stocks. Chinese companies that trade on U.S. indexes have been performing particularly well today after news broke that China and the U.S. may be about to resolve a longstanding dispute over auditing practices. Additionally, China’s State Council has announced plans for a new stimulus package, worth roughly $117 billion, to help stimulate economic growth. NIO stock is up about 7% for the day as Chinese companies enjoy their highest rally since April. Its rival, Li Auto (NASDAQ:LI) has risen about 4%.
China’s New Deal Helps NIO Stock
This double shot of positive news comes at an excellent time for Nio. The company has earned a place among Wall Street analyst favorites but one firm has taken a highly bearish stance. In June 2022, Grizzly Research issued a damning short report, accusing Nio of inflating revenue, and comparing it to the Valeant Pharmaceuticals accounting scandal of 2020. Despite InvestorPlace contributor David Moadel’s claim that recent delivery results make Nio a buy, NIO stock has been declining for most of the summer. Today’s news could be exactly what the company needs to pull back into the green and stay there.
Let’s break down the day’s news. The U.S. and China have been engaged in an auditing practice dispute for months. This has led to tense market conditions for Chinese companies that trade on U.S. exchanges. Now Bloomberg reports that the two nations are nearing an agreement. According to sources, it “would allow representatives from the US Public Company Accounting Oversight Board to travel to Hong Kong as soon as next month to perform audits on record for Chinese companies listed on America exchanges.”
While there is still no official confirmation, this is excellent news for both nations. It makes sense that the countries would want to reach a peaceful resolution as both economies have been facing turbulence. In late 2022, some Chinese stocks faced the threat of being delisted from U.S. exchanges if they did not cooperate with U.S. auditing protocols. If China is warming up to the idea of complying with U.S. regulators, it will be great for NIO stock and its peers. The NASDAQ Golden Dragon China Index has already risen 6% today on the news.
More Good News
Reaching a deal with the U.S. isn’t the only measure China has taken to spur economic growth. Its State Council has announced plans for a 19-point policy stimulus package that will highlight infrastructure spending. According to UBS Global Wealth Management CIO Mark Haefele, it is “aimed at cushioning the economy from both its ongoing zero-Covid measures and the continued property crisis.” A note from Goldman Sachs analysts espoused a similar hopeful sentiment, stating:
These measures could help offset the sharp contraction in government revenue and support infrastructure investment growth to some degree in coming months.
Given the pressure that Chinese companies have been under throughout 2022 due to the country’s stringent Zero Covid policies, this cash injection is a logical step forward for the economy. While an influx in infrastructure spending may not boost EV sales directly, it will help spur overall economic growth, helping names like NIO stock keep moving upward.
Additionally, Nio is getting ready to launch in Germany, another catalyst sure to boost shares. Investors should keep a close eye on NIO stock in the coming weeks.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
