Why Chinese stocks are falling today

What happened

Chinese stocks traded lower on Thursday, although the country’s health ministry said earlier today that the country has passed the peak of the coronavirus outbreak.

This did not stop the actions of Weibo (NASDAQ: BM) to trade down more than 9% on Thursday afternoon, and the shares of Baidu (NASDAQ: BIDU), bilibili (NASDAQ: BILI), Lucky coffee (OTC: LKNC.Y), and iQiyi (NASDAQ: IQ) of all trade down more than 7%.

So what

These companies are all engaged in different activities, but all focus on China. Baidu is the leading Chinese Internet search provider, while Luckin is a growing Asian coffee chain, Bilibili and Weibo are social media platforms, and iQiyi is focused on video streaming.

A collection of Chinese stocks since the start of the year given by YCharts

Like American start-ups, many of these companies are growth mode right now, and as the novel coronavirus swept through China and slowed the country’s economic momentum, it certainly took a toll on the short-term results of these companies. However, most of those US-listed stocks have held up well to the Chinese side of the coronavirus story and have only been hit hard in recent weeks as the outbreak spread globally.

Luckin Coffee, the outlier on this list in terms of reliance on traditional retail stores and consumers in public, is also the only one of those stocks to have been hit hard in late January and early February. Bilibili shares, on the other hand, are still up for the year, albeit down from the highs reached in February.

Now what

What can an investor get from this price action? This could indicate how much the recent drop in stocks has been fueled by sentiment, not fundamentals. Even though the epidemic has passed its peak in China and the country is starting to return to normal, those Chinese stocks that trade in the US remain under pressure as the novel coronavirus is at the center of the minds of US investors trading. the actions. .

A discouraged investor bows his head at a downward trending stock chart.

Image source: Getty Images.

That’s not to say that the impact of the novel coronavirus won’t be substantial and won’t affect businesses in the United States and China. But if this indicates that much of current sales are driven by sentiment, it suggests that as the Western world begins to curb the outbreak, markets should stabilize. On the flip side, it also suggests that the selling could continue as long as the epidemic rages on, even if individual stocks appear to be oversold.

All of these companies, like their American counterparts, will need time to calculate the damage to their businesses caused by the novel coronavirus. For now, the goal of investors and governments is to stem the epidemic as quickly as possible.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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