Gaotu Techedu Inc. (GOTU) saw its stock plummet by 5.26% in pre-market trading on Tuesday, as Chinese ADRs (American Depositary Receipts) faced a broad sell-off amid profit-taking and a cooling tech rally. The education technology company's decline aligns with a larger trend affecting numerous Chinese stocks listed in the U.S.
The sell-off in Chinese ADRs comes despite strong gains on Wall Street overnight, suggesting a disconnect between U.S. and Chinese market sentiments. Investors appear to be reassessing their positions in Chinese tech stocks as the initial excitement surrounding DeepSeek's AI model wanes. Market participants are now demanding more concrete evidence of real-life applications before further bidding up share prices.
Adding to the pressure on Chinese stocks is the potential for new tariffs on automobile imports announced by former President Donald Trump. While the direct impact on Gaotu Techedu may be limited, the overall uncertainty surrounding U.S.-China trade relations could be contributing to the negative sentiment. As investors recalibrate their expectations, the sustained sell-off in Chinese ADRs may challenge the emerging narrative of Chinese markets as an alternative investment ground to the U.S.
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