Shares of major Chinese tech and consumer stocks such as tech conglomerates Alibaba (BABA -4.45%) and Tencent (TCEHY -4.96%), as well as digital online broker Futu Holdings (FUTU -4.98%) were all falling today. They were down 4.3%, 5.6%, and 5.2%, respectively, as of 1:49 PM ET.
The across-the-board move indicates that the declines had to do with Chinese stocks broadly and not individual stock news. Most likely, the downdraft was caused by disappointment over today’s action — or rather inaction — by China’s central bank. In addition, a Wall Street analyst issued a cautious note on Chinese stocks last night after a huge year-to-date rally, which may have encouraged some profit-taking.
China’s central bank holds rates, and investors take profits
The big rally in Chinese stocks since last summer, and especially since the beginning of 2025, has largely been due to new stimulus measures. Some are already announced, and some are anticipated in the future.
China has been mired in a recessionary state ever since the government’s heavy-handed crackdown on tech companies and entrepreneurs, the restrictive “zero-Covid” policies, and the popping of the country’s property bubble. With the prospect of higher U.S. tariffs on Chinese goods ramping up, people have been reluctant to spend.
Thus, the government and the People’s Bank of China (PCOB) have embraced more stimulus measures since last summer. As part of that, the PCOB has been lowering interest rates, with its latest 25-basis-point cut coming last October.
However, China is also trying to balance stimulus measures with not letting its currency devalue too much. Lower interest rates generally cause a debasement of a country’s currency, if a country cuts rates while peers do not. So today, the PBOC opted to leave the one-year loan prime rate at 3.1% and the five-year rate at 3.6%, instead of doing another cut.
That may have disappointed some Chinese investors, who might have decided to take profits on the news. After all, Chinese stocks have run up hard this year into today. A combination of expected stimulus, the DeepSeek AI model breakthrough in January, and lower valuations than U.S. counterparts has caused a big surge in Chinese stocks to date. Even with today’s sell-off, Alibaba, Tencent, and Futu Holdings are up 69%, 31%, and 43%, respectively, on the year.
Yesterday, analysts at Bank of America cautioned that a correction could be coming for Chinese stocks. The analysts noted that the recent rally bears similarities to the early 2015 rally in Chinese stocks, as the country attempted to stimulate its way to more consumer-oriented spending and away from manufacturing and industrial exports. Similarly, like the DeepSeek and AI enthusiasm of today, investors were also excited about Chinese technology breakthroughs in 2015, with Alibaba’s landmark initial public offering coming at the end of 2014.
The combination sent Chinese stocks soaring in mid-2015, but that rally eventually collapsed back down and even below prior levels, as the global economy slowed. The analysts elaborated: “Performance of the HSCEI/MSCI China in the past 17mths trended closely to the trajectory a decade ago, making us worry that we might be approaching some correction soon.”
A tough call for China investors and central bankers
On the positive side, China’s central bank might have felt comfortable holding rates today because China’s economy seems to be picking up a bit. Recent retail sales and industrial output readings in the country showed an improvement in growth, and yesterday, Tencent reported earnings that showed accelerating revenue and earnings growth relative to the prior year.
That being said, the resumption of growth could stall if China’s central bank remains too restrictive, or if the government’s proposed stimulus measures fall short of what is necessary. Given all the uncertainty around the final policy, as well as the ever-changing tariff policy in the U.S., it’s no wonder investors are booking profits today after a strong run.
Bank of America is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients have positions in Bank of America. The Motley Fool has positions in and recommends Bank of America and Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
