Why Chinese Stocks Like XPeng and Dada Nexus Were on Fire Today

There's nothing like a large-scale stimulus plan to stimulate the prices of affected financial assets. That was the dynamic behind the widespread rise of Chinese stocks on Tuesday following the announcement of a package of measures aimed at juicing that massive economy.

Investors clearly weren't all that picky about the stocks they piled into to take advantage of this stimulus plan. Electric vehicle (EV) makers Xpeng (NYSE: XPEV) and Nio (NYSE: NIO) both saw their American depositary receipts (ADRs) close the day nearly 12% higher, while delivery company Dada Nexus's (NASDAQ: DADA) American depositary shares (ADSs) rose by almost 14%. Outpacing all three was job-recruiting platform developer Kanzhun (NASDAQ: BZ), with a more-than 19% increase.

Top-down measures

While certain top-down government initiatives have been rolled out in the U.S. and in other Western markets, they are relatively uncommon (and tend to be enacted only in crises). The Chinese government is more heavy-handed and interventionist, and is often willing to impose programs on the country in order to boost the economy.

In the latest such move, the People's Bank of China (PBOC) -- the central bank that is effectively an arm of the government in contrast to the theoretically independent monetary-policy makers in other countries -- rolled out a set of stimuli on Tuesday. Among the most important measures is the PBOC's promise to cut key interest rates and to reduce the reserve requirement ratios (RRRs) -- the amount of cash domestic banks are required to hold in reserve for their clients.

According to reporting from Reuters, the latter measure alone should free up around 1 trillion yuan ($142 billion) for banks, which the government surely hopes will be used for fresh lending.

The country's troubled real estate market will hopefully improve with several initiatives designed especially for that corner of the economy. A 50 basis point reduction on average interest rates for current mortgages will bring some relief to homeowners, while home seekers should benefit from a reduction to 15% in the minimum downpayment required for dwellings.

2 sectors that should shine

It's too early to tell, of course, how these measures will filter down into the fundamental performance of individual companies. It's a good bet that China's critical EV sector will be quite the beneficiary, as vehicle manufacturing is capital-intensive even at the best of times, and even a slight dip in funding costs can have an outsized impact. Also look for companies either directly involved in finance, or those that rely on it more than others, to show marked improvement once the measures kick in.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.