BABA, JD, BIDU: Chinese Tech Stocks Soar After Interest Rate Cut

Leading Chinese technology stocks such as Alibaba (BABA), JD.com (JD), and Baidu (BIDU) are up about 2% on news that China has lowered interest rates for the first time in seven months.

The People’s Bank of China trimmed its one-year loan prime rate to 3.0% from 3.1%, and its five-year rate to 3.5% from 3.6% as the government in Beijing tries to stimulate the country’s struggling economy. While small, the interest rate cuts are the first since the central bank’s 25-basis point cut last October.

The benchmark lending rates — normally charged to banks’ best clients — are calculated monthly based on proposed rates submitted to China’s central bank. The one-year rate influences corporate and household loans in China, while the five-year rate serves as a benchmark for mortgage rates.

News of the rate reductions lifted the entire stock market in China, with the benchmark Hang Seng index closing 1.5% higher on May 20.

Struggling Economy

Many analysts expect China’s central bank to continue lowering interest rates this year, with some forecasting a 40-basis point cut by year’s end. China’s economy has struggled coming out of the Covid-19 pandemic, and Beijing has been trying to bolster it, especially amid a trade war with the U.S.

Other recent economic stimulus measures announced by Beijing have included reductions to lending rates and the amount of cash that banks must hold in reserve. Interest rates charged on home mortgages have been lowered by 25-basis points. China’s government has set an ambitious growth target of 5% for the economy this year.

Is BABA Stock a Buy?

The stock of Alibaba has a consensus Strong Buy rating among 15 Wall Street analysts. That rating is based on 15 Buy recommendations issued in the past three months. The average BABA price target of $164.57 implies 32.21% upside from current levels.

Read more analyst ratings on BABA stock