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Chinese stocks, including Alibaba (BABA), Estee Lauder (EL), and Nike (NKE), experienced a significant increase on Monday, with shares rising by 6.2%, 5.2%, and 2.9% respectively, as of 2:20 p.m. ET. This uptick comes amid a challenging period for many companies exposed to the Chinese market.
Alibaba has been working to recover from a prolonged downturn, while Estee Lauder and Nike have seen particularly disappointing performance recently. The rally in these China-linked stocks stands out, especially following the announcement by former President Donald Trump over the weekend regarding new tariffs on steel and aluminum imports.
Tariffs Prompt Speculation on Stimulus
President Trump declared a 25% tariff on all steel and aluminum imports into the United States and suggested that any country imposing tariffs on U.S. goods would face reciprocal measures. Although the U.S. does not import significant amounts of steel from China, it is a major global exporter of these materials. Increased tariffs could disrupt the supply chain, particularly impacting countries that import Chinese steel and subsequently sell it in the U.S. as their own products.
If the new tariffs lead to higher prices for U.S. steel, the indirect avenues through which Chinese steel is exported might be affected, potentially decreasing China’s overall steel export revenues. Despite this counterintuitive situation, investor optimism for stocks sensitive to the Chinese market appears to be rising. Many analysts believe that trade restrictions might prompt Chinese authorities to stimulate domestic consumption to offset any losses in industrial revenues. With crucial political meetings approaching in March, the likelihood of further stimulus announcements remains a key focus.
Should consumer spending in China increase, it would be advantageous for major companies like Alibaba, Nike, and Estee Lauder. For context, Nike has historically garnered over 15% of its revenue from China, while Estee Lauder has been grappling with a severe decline in makeup sales in the region. At one point in 2021, Chinese sales accounted for 34% of Estee Lauder’s revenue, illustrating the significant impact while its business currently suffers due to market conditions.
Both Estee Lauder and Nike are bouncing back from challenging weeks; Nike faced a downgrade from analysts, while Estee Lauder’s stock tumbled following disappointing fiscal second-quarter results.
In addition, optimism surrounding Alibaba’s potential is being fueled by advancements in artificial intelligence (AI). The recent introduction of DeepSeek’s R1 AI model created excitement within the tech industry and revitalized interest in the competitive capabilities of Chinese tech firms. Remarkably, Alibaba has its own line of AI models called “Qwen.” Recent developments suggest that researchers from Stanford and Berkeley have created a new AI reasoning model for a mere $50, utilizing Alibaba’s Qwen2.5-32b-Instruct as a foundational model, showcasing the potential affordability and accessibility of quality AI solutions.
Future Outlook for Chinese Stocks
After experiencing a prolonged slump, Chinese stocks have seen a year of recovery driven by the prospect of substantial government stimulus. Although some measures have been implemented and officials express commitment to restoring growth, skepticism remains regarding the effectiveness of indirect stimulus approaches over direct consumer subsidies.
The current valuations of leading Chinese tech stocks are considerably lower when compared to their U.S. counterparts, while consumer discretionary stocks like Nike and Estee Lauder have been severely impacted. The prospect of heightened tensions between the U.S. and China under Trump’s policies adds another layer of complexity to the situation.
Nonetheless, if China maintains its trajectory of recovery and announces robust stimulus initiatives in the coming months, the outlook for these stocks could remain positive.
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