Shares of New Oriental Education & Technology Group (EDU) skyrocketed by 12.66% on Tuesday, riding a wave of optimism surrounding Chinese stocks as Beijing signals a shift towards economic stimulus and support for sectors like education.

The surge in EDU's stock price comes amid a broader rally in Chinese equities, with the MSCI China ETF gaining a remarkable 35% over the past two weeks. This turnaround has been fueled by a coordinated effort from Beijing to stabilize the economy through measures such as interest rate cuts, plans to recapitalize major banks, and promises of more stimulus.

According to Louis-Vincent Gave, head of the Hong Kong-based financial services firm Gavekal, China has entered the beginning stages of a potential bull market. These bull runs, which occur every five years, often generate gains of 100% or more as positive momentum builds on itself. Gave believes the recent rally is driven by a trifecta of positive factors: deeply undervalued stocks, policy tailwinds, and a strengthening currency.

Crucially, Gave suggests that Beijing's previous crackdown on sectors like education and property may have been part of a strategic plan to address economic vulnerabilities and promote self-reliance. Now that progress has been made in areas like electric vehicles, nuclear power, and manufacturing, the government could look to stimulate the economy once again, benefiting sectors like education that were previously targeted.

In this context, the education sector, including established players like New Oriental Education, could be well-positioned to benefit from the changing policy environment. As Gave notes, the previous crackdown on the sector has created barriers to entry that protect incumbents like EDU. With households likely to increase spending on after-school tutoring amid the improved economic climate, New Oriental Education could be poised for further gains.