Shares in Chinese tech giants Alibaba and JD.com are rising after China cut rates.
Alain Jocard/AFP via Getty Images
It’s a good day for Chinese tech stocks.
While the wider U.S.-listed tech sector is poised for a rebound Thursday—after the heavily tech-weighted Nasdaq index fell into correction territory Wednesday—the likes of Alibaba and JD.com are outperforming.
Futures for the Nasdaq 100, which tracks the largest constituents in the Nasdaq Composite, signalled a 0.9% rise Thursday. That comes after the Nasdaq tumbled 1.8% Wednesday, marking a 10.7% decline from its highs in mid-November, putting it firmly into correction territory.
But Alibaba (BABA) and JD.com (JD) have jumped between 6% and 7% in premarket trading. Alibaba’s Hong Kong shares (9988.H.K.) surged 5.8% in Thursday’s session in Asia, with JD.com (9618.H.K.) tearing 6.5% higher.
Helping tech stocks across the board is a fall in bond yields. Many high-growth companies like those in the technology sector have stock market valuations that rely on the prospect of profits years in the future. Higher bond yields discount the present value of future cash, making those valuations less attractive.
The yield on the benchmark 10-year U.S. Treasury note spiked to just shy of 1.9% this week — it closed out 2021 at 1.51% — but has since pulled back to near 1.83%. That’s good for tech investors.
For Chinese tech, there’s another key factor at play: monetary policy in China. The Chinese central bank slashed two key rates Thursday as part of its efforts to support economic growth.
The People’s Bank of China cut its one-year loan prime rate to 3.7% from 3.8%, while the five-year rate, a benchmark for mortgage lending, was reduced to 4.6% from 4.65%. It’s the first time the five-year rate has been cut since April 2020.
“China’s easing measures improved investor risk appetite,” noted Jim Reid, a strategist at Deutsche Bank.
A more “risk-on” mood typically benefits high-growth stocks, like Alibaba and JD.com. But Wall Street faces a cautious day ahead as investors continue to grapple over the prospect of rising interest rates amid higher inflation. After all, the Nasdaq gained as much as 1% Wednesday before turning sharply lower.
“Sentiment has weaved in and out of positive/negative territory like the most tangled of hairstyles over the last 24 hours,” said Reid.
And while Alibaba and JD.com are outperforming — with analysts generally optimistic about where the stocks are headed, especially Alibaba — broader risks remain for the Chinese tech sector, particularly from regulators.
Write to Jack Denton at firstname.lastname@example.org