Chinese stocks are taking a beating today and Chinese electric vehicle (EV) stocks, such as Nio (NYSE:NIO), Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV), have not been able to escape the damage. XPEV stock is the worst off within the group today, with shares down more than 10%.
Today, China’s CSI 300 Index, similar to the U.S.’s S&P 500, closed down by almost 1%, marking its lowest price level in almost a year. Meanwhile, the Shanghai Composite Index closed at its lowest level since last December. These declines were influenced by China’s data release that showed that property investment fell by 11% year-over-year (YOY) in September. On top of that, property developer Country Garden (OTCMKTS:CTRYF) missed a final bond payment deadline, exasperating the slump in Chinese stocks.
Why Are Chinese EV Stocks Down Today?
Of course, property development has no direct relationship to Chinese EV companies. However, the three companies demonstrate a corresponding relationship with major Chinese indices, much like how U.S. stocks move in sympathy with the S&P 500 or Nasdaq 100. It isn’t helping things that both major indices in the U.S. are in the red today, as the three companies trade publicly in the United States.
However, the news surrounding Chinese stocks isn’t all bad. Earlier this week, Goldman Sachs (NYSE:GS) released a report detailing how China’s “National Team” has been buying up Chinese stocks more frequently, which could support a year-end rally.
“The top five ETFs favoured by the National Team surged by 90 billion yuan (US$12.3 billion) in net subscriptions in August,” said the investment bank. Goldman estimates that the National Team owns about 2 trillion yuan of onshore stocks, equivalent to about 3.5% of the country’s total market capitalization.
Last week, China sovereign wealth fund unit Central Huijin Investment also increased its exposure in China’s “big four” state-owned banks, marking the first occurrence in eight years. This has led many to believe that further significant investments could follow.
Whether direct government buying intervention is effective remains the big question. In 2015, the CSI 300 plummeted by 40% despite government buying through state-controlled funds like China Securities Finance and Central Huijin. At the same time, government buying has also helped Chinese equities in the past.
On the date of publication, Eddie Pan did not hold (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.
