But the ETF is up 12% last week thanks to a strong rally on Wednesday and Friday. So why are investors suddenly more optimistic about China? The Chinese government seems to realize that the damage caused by falling stock prices is not perfect.
“China’s pledge to loosen regulations and support real estate and tech stocks could be a game and a tipping point,” Ipek Ozkardeskaya, senior analyst at Swissquote, said in a report, adding that “it looks like the latest sell-off was so strong that it forced the Chinese government to raise the white flag.”
Beijing also noted last week that US and Chinese regulators have made “positive progress” in talks to list Chinese stocks in the US.
Chinese stocks likely to remain volatile
An increase in Covid cases in China may also prompt Beijing regulators to change policy as they try to minimize some of the much publicized supply chain problems that have hurt China’s economy and led to increased inflationary pressures in the US.
“China is experiencing the largest Covid outbreak since its early stages, challenging the Zero Covid policy,” Mark Hackett, head of investment research at Nationwide, said in a report last week.
A change in Beijing’s tone would be welcome news for some Western investors. But experts warn that Chinese stocks will remain highly volatile, noting that some US investors appear to be actively betting against some Chinese companies.
“As the State Council of China attempts to lift Chinese equities, we are seeing the shorting community come back and become very active,” Dan Pipitone, CEO and co-founder of brokerage firm TradeZero, said in a report last week. Investors “short” stocks when they think they will fall in value.
Clearly, there remains a lot of concern about Chinese stocks. The country’s economy continues to grow rapidly despite recent problems. But until the dust settles over the latest Covid outbreak and the Russian-Ukrainian conflict, even top Chinese companies like Alibaba and Tencent may remain risky.