It isn’t easy investing in Chinese stocks. So far this year, Nio (NYSE:NIO) is down by about 25%, driven by a tough Chinese economy reeling from harsh regulatory policies, deflation and a property crisis. On top of that, the Chinese electric vehicle (EV) company remains unprofitable, reporting a GAAP earnings per share (EPS) loss of 37 cents while burning through cash. NIO stock isn’t alone. The Hang Seng Index is trading near a yearly low with a five-year loss of more than 40%.
While President Xi Jinping has been hesitant to provide the market with direct support, it appears that the losses may have convinced him to change his mind. According to Bloomberg, the world’s second-largest economy is mulling a $278 billion injection into its onshore Hong Kong shares. These funds would be mainly acquired from the offshore accounts of Chinese state-owned companies. Bloomberg also reports that Chinese officials have set aside $300 billion yuan, or about $42 billion, for the same purpose.
“It is necessary to enhance the consistency of macro policy orientations, strengthen innovation and coordination of policy tools, consolidate and enhance the positive economic recovery, and promote the stable and healthy development of the capital market,” said Chinese Premier Li Qiang earlier this week.
Why Is NIO Stock Up Today?
Chinese officials are currently in the process of discussing other measures to lift up the market, which may be announced as soon as this week.
Before the potential $278 billion injection was announced, China had provided two state-owned insurance firms with window guidance to not sell more shares than they purchase. The country had also advised its largest brokerage to pause short selling accessibility for some clients.
It is clear that China seeks to walk back the effects of its restrictive actions enacted in 2020 and onward. Whether these actions will actually help the market remains to be seen.
On the bright side, Wall Street analysts appear to be bullish on NIO. The company carries an average price target of $10.86 among 10 analysts with coverage of the stock during the past three months. That implies upside of about 74% from current levels.
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.
