Why shares of Full Truck Alliance, UP Fintech Holding and RLX Technology are rising today

What happened

Shares in some Chinese stocks rose on Wednesday as investors reacted positively to earnings reports. The market has also turned more positive on the country’s businesses despite ongoing concerns about its efforts to crack down on COVID-19.

Shares of digital freight platform operator Full Truck Alliance (ÅMM 13.76%) traded more than 13% higher at 12:36 pm ET. Meanwhile, shares of online brokerage UP Fintech Holding (TIGER 8.87%) was up almost 8% higher and shares of vaping company RLX technology (RLX 20.12%) had jumped by close to 20%.

So what

For the third quarter, Full Truck Alliance reported adjusted earnings per American depositary share of $0.07 on total revenue of more than $254 million, both numbers beating analysts’ estimates.

Image source: Getty Images.

The company fulfilled 33.5 million orders in the quarter, down 5.4% year-over-year. The average number of monthly active senders on the platform rose 15.2% year over year to 1.85 million.

“In the context of weak seasonal demand and strong macro headwinds, we delivered solid third quarter results through our powerful digital freight platform and operational excellence,” CEO Peter Hui Zhang said in the results press release.

For the fourth quarter, Full Truck Alliance projects as much as $260 million in net income.

UP Fintech also reported Q3 results Wednesday morning, posting adjusted earnings per US depositary share of approximately $0.04 on total revenue of $55.4 million. Revenue beat analysts’ estimates.

During the quarter, UP Fintech’s deposit customer base grew by more than 23%, even as total account balances decreased by nearly 37% year-over-year and total margin financing and securities lending declined by more than 48% year-over-year.

While investors remain generally concerned that China’s zero-covid policy of responding to outbreaks with lockdowns and intense restrictions could hurt the country’s economic growth, many pundits believe Chinese stocks have bottomed out or are at least approaching a bottom. Hong Kong’s benchmark Hang Seng index is down nearly 25% this year.

“Basically, I think the worst is probably behind us [the sector]” said Vivian Lin Thurston of William Blair Investment Management, according to Bloomberg. “The growth of these companies may not be as strong as we have seen in the last decade, but it is still very solid and probably more favorable than other sectors in China. The investment opportunities are very interesting and attractive.”

What now

It’s been an absolute rollercoaster ride for Chinese stocks since the pandemic started. They have dealt with a struggling Chinese economy and a regulatory environment that has gone from highly restrictive to more relaxed recently as the government pursues policies intended to boost economic activity. But the erratic behavior of the Chinese government on that front makes investments there more difficult to evaluate.

I think many of these Chinese companies have strong potential given the size of their potential markets, but the behavior of the Chinese stock market has been too volatile for me to really get behind.

When evaluating opportunities, I will look for Chinese companies that are larger, more established, and less likely to attract extremely intense attention from the country’s regulators. For example, the Chinese government recently imposed a 36% tax on the production or import of e-cigarettes. It will certainly hurt RLX Technology.

Of these three names, I tend to favor Full Truck Alliance, and I like the concept very much, but I would still advise any investor to do a lot of due diligence on the regulatory environment surrounding the company before buying the stock.