China’s Ministry of Finance is entertaining the idea of giving local governments the opportunity to sell special bonds. If this idea comes to fruition, it would mean that the governments will sell 1.5 trillion yuan ($220 billion) of special bonds in the second half of the year aimed at propping up the Chinese economy.
The quota for these bonds would be brought forward from next year’s quota, which would mark the first time the issuance has been fast-tracked, as initially reported by Bloomberg on July 7.
Meanwhile, shares of Baidu (NASDAQ: BIDU), Alibaba (NYSE: BABA), and JD.com (NASDAQ: JD) jumped in Thursday’s trading in response to end the day up 3.68%, 2.75%, and 2.22%, respectively.
Further, other Chinese listed American Depositary Recipients (ADRs) rose on the news of the potential bond sales, with Bilibili (NASDAQ: BILI) leading the pack with a 6.68% gain, while the Krane Shares CSI China Internet exchange-traded fund (ETF) ended the day up 2.75%.
BIDU stock analysis
Despite ending yesterday’s session up 3.68% and closing above all daily Simple Moving Averages (SMAs), Baidu shares are just u 3.75% year-to-date (YTD). Over the last month, the trading range seems to be set between $157 and $144, with a double bottom pattern on the daily chart, which usually signifies a change of momentum.
BABA stock analysis
Meanwhile, BABA trades in the $125 and $108 range, also closing above all daily SMAs with yesterday’s trading session. No significant trading volume increase has been noted, possibly signaling a sideways movement, with the stock up 1.67% YTD.
JD stock analysis
On the other hand, JD closed the session slightly below the 20-day and 50-day SMAs, on average trading volumes, with the stock down over 7% YTD. Currently, the trading range is wide, between the $57 and $68 levels.
Moreover, the debt issued by the sale of these special bonds would be used to pay for infrastructure spending, an old trick used to prop up an economy hit by a housing slump and slowdowns related to the more recent Covid lockdowns.
It seems that the goal of the Chinese government is to achieve a targeted growth rate of around 5.5% annually, especially since the sale of such bonds usually depends on the National Party meeting in March to officially approve the quotas before the bonds are sold, this time around the entire process is sped up.
Despite the fast-tracked approach, it is looking less likely that the Chinese economy will manage to reach the desired number amid a challenging global macro picture and resurgence of Covid. Economists surveyed by Bloomberg forecast the economy to grow 4.1% this year.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.