Chinese tech stocks are rising as the threat of delisting recedes, amid strong earnings from Baidu (NASDAQ:BIDU) and Pinduoduo (NASDAQ:PDD).
A tentative deal on U.S. regulators gaining access to the audits of Chinese companies listed in the U.S. was the main catalyst. The agreement means Chinese stocks may now be valued more on results, rather than just political tensions.
If China is recovering from its Covid-19 lockdowns many shares will be getting a second look. The government of President Xi Jinping is also trying to goose growth ahead of his October re-election.
Chinese Stocks: Not All Junk
The shopping site Pinduoduo was the star among Chinese Stocks today. It delivered earnings of $1.33 billion on revenue of $4.7 billion for its most recent quarter. Both figures handily beat analyst estimates. Bank of America raised its price target on PDD to $89. It opened on Aug. 30 at $68. The shares are now up 20% on the year.
Baidu had a net income of $543 million, $1.49/share under GAAP, on revenue of $4.4 billion. The stock is now up 2.45% on the year. Shares rose on the strength of Baidu’s cloud operations in what CEO Robin Li called “a challenging macro environment.”
TAL Education (NYSE:TAL) and New Oriental Education (NYSE:EDU) are also rising on the fading delisting threat. Both education companies remain down 80%-90% from their 2020 highs.
What Happens Next
Not all Chinese tech stocks have joined the bull party.
JD (NASDAQ:JD) stock is still down 11% for 2022. Alibaba Group Holding (NYSE:BABA) stock is down 18%. Tencent Group Holding (OTCMKTS:TCEHY) saw its first revenue decline. The biggest Chinese tech companies have lost a collective $1.2 trillion from their late-2020 peak. Analysts talk about a “phase change” that could permanently hold down growth.
They could be helped, however, by the government’s decision to inject 1 trillion Yuan ($144 billion) into economic recovery. Whatever comes next, the government will have the final say, a fact that could keep American investors away permanently.
On the date of publication, Dana Blankenhorn held positions in BAC and BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
