By Brian Swint

U.S.-traded stocks of high-profile Chinese companies were set to pop again on Wednesday after the government and central bank unleashed a wave of stimulus for the world's second-biggest economy.

American depositary receipts for retailer JD.com jumped more than 10% in the premarket. Those for rival Alibaba added more than 5%, and electric vehicle-maker NIO was up 7.5%.

While China is celebrating the Golden Week holiday, the Hang Seng Index in Hong Kong is continuing to benefit from the interest-rate cuts announced last week, as well as the additional funds made available to buy stocks. It closed up 6.2% Wednesday and has added 27% over the past month.

Some analysts see this as the start of an even bigger rally. However, there are also some warning lights flashing for anyone looking to invest more in China.

The biggest risk is that the stimulus measures don't do enough to get economic growth back on track. Stock traders are clearly optimistic now, but it remains to be seen if they actually work.

Next, the Israel-Iran conflict is threatening to disrupt global oil supplies -- and China is particularly reliant on energy imports. Unlike the U.S., China doesn't have much domestic production. A spike in fuel costs would slam the brakes on the recovery.

Finally, trade tensions between China, Europe, and the U.S. aren't going away. Both presidential candidates, Donald Trump and Kamala Harris, have shown a willingness to confront China when it comes to semiconductors, electric cars, and steel. The European Union is on the same page, enacting anti-dumping measures on Chinese imports from fuel to EVs.

So enjoy the China rally for now. But also take note of the red flags.

Write to Brian Swint at brian.swint@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 02, 2024 07:56 ET (11:56 GMT)

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