Why Is NIO Stock Up 10% Today?

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Nio (NYSE:NIO) stock joined the “melt up” of Chinese stocks. It was up 8% in morning trading on top of a nearly 5% gain Nov. 3.

Other Chinese stocks traded in New York, like Alibaba (NYSE:BABA), Xpeng (NYSE:XPEV), and JD.com (NASDAQ:JD) also rose sharply, on hope that China’s “zero-COVID” policies may be phased out.

What Is Going on With NIO Stock?

Exchanges in Shanghai and Hong Kong had their best week in years after an unverified transcript from a former top health official hinted at imminent changes to the policy.

Workers are increasingly voicing frustrations over policies that implement lockdowns over individual Covid-19 cases. The Foxconn factory making the Apple (NASDAQ:AAPL) iPhone was recently hit with one.

Epidemiologist Zeng Guang reportedly told a closed-door conference organized by Citigroup (NYSE:C) that the policy is being reconsidered, in the face of new variants, vaccines and treatments.

Valuations were becoming irresistible, even to American investors leery of China. Nio, for instance, sells for just 5.5 times its annual sales. This while the U.S. dollar trades at 7.19 to the Chinese yuan, down from 6.3 times just a year ago. A rising yuan makes Chinese stocks amore valuable to foreign investors, just as a high U.S. dollar has this year. Overall, the dollar’s value against other currencies is up 15% this year.

Nio is also down dramatically, 67% on the year. Its latest fall came after Nio reported deliveries in October that were down from September.

What Happens Next?

All Chinese stocks trade based on what’s happening with China’s economy, which in turn is based entirely on what China’s government is doing. With this in mind, I recently  recommended Chinese stocks highlighting today’s low valuations.

If the lockdowns are ending, and if the government is turning back toward pro-growth policies, Chinese stocks will continue to rise. Distrust of China may still have them trading at a discount to U.S.-based competitors, however. Tesla (NASDAQ:TSLA), for instance, trades at over 10 times its annual revenue.

On the date of publication, Dana Blankenhorn held long positions in AAPL and BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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