BABA, NIO and other Chinese stocks advance on reevaluation of strict covid policies

• Chinese authorities are signaling a change in its harsh covid policies.
• Chinese National Health Commission is telling government officials to focus on business needs as well.
• BABA, NIO stocks both jumped as much as 10% in the premarket.

Alibaba (BABA), Nio (NIO) and other Chinese stocks are advancing early on Friday after the Chinese National Health Commission announced it would keep business interests in mind when determining new regulations and restrictions for combating covid. This news is being treated as an about-face. President Xi Jinping's administration has long been the global standard-bearer of radical zero-covid policies, and now the authorities appear to be letting up.

Alibaba stock and that of Nio both gained as much as 10% in the premarket but opened the regular session on Friday closer to a 5% advance. This is good news for shareholders as both stocks have reached multi-year lows of late. Additionally, the unemployment rate rose on Friday from 1/10th of a percent to 3.7%. The market met this data with enthusiasm, seeing it as a sign that the Federal Reserve may be getting closer to its unstated goal of raising unemployment to combat inflation.

Chinese covid policy pivot

The Chinese National Health Commission has announced that it will "strive to control COVID-19 outbreaks with the minimum scale affected, and the shortest time and lowest cost possible," according to the state-aligned newspaper Global Times. 

Many observers view this news as a departure from past bureaucratic speeches concerning covid prevention. Other experts quoted in the newspaper added that the healthy body's announcement was necessary to ensure that government officials at the local level did not focus exclusively on combatting the virus and instead also considered the economic needs of citizens and businesses.

The International Monetary Fund said last week that it would be shaving nearly one percentage point off its forecast for Asian GDP growth this year due to China's covid policies. The policies have involved lockdowns for individual cities and regions, as well as factory shutdowns that have reduced both output and businesses' demand for foreign goods.

Alibaba stock forecast

Now in the high $60s, BABA stock is sitting between two different support levels. For a rally to continue, BABA needs to overtake the March 15 low from earlier this year at $73.28. Before dropping far below it last week, the support level offered up the share price renewed fortitude for a time. Now the new support level appears to fall to $63.40. The Relative Strength Index (RSI) will need to overtake the 50 level before more traders decide to join in this rally.

BABA daily chart

Nio stock forecast

NIO stock in a bit of the same boat as BABA. The EV stock is off its new support level of $9.50 but seems to have found resistance at the 21-day moving average at $11.21. Bulls would require a close above this moving average before make a run at short-term resistance at $13. Following that price level, buyers would likely seek a selling target at the $16.54 former support level. The area between $16 and $16.54 has seen an awful lot of volume and price action that makes it especially significant.

NIO daily chart