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Nioh (NIO 4.51%) The stock rose sharply in Tuesday morning trading, rising 8.2% as of 11:30 a.m. ET, according to S&P Global Market Intelligence data.
According to a report from Reuters, China’s major government banks are moving to support the country’s currency. The news fueled a broad rally in Chinese stocks, with electric vehicle (EV) companies benefiting from the bullish momentum.
sell dollars and buy renminbi
Although China’s economy has rebounded from the challenges caused by the coronavirus pandemic, performance has been uneven. Beijing has moved to support the country’s real estate sector, but has been more cautious than many investors and analysts would like when it comes to broadly supporting the economy through stimulus packages. The difficult macro environment contributed to the poor performance of Nio and other Chinese stocks last year, but some support appears to be in place.
China’s top state-owned banks are moving to strengthen their offshore currency, the renminbi, according to an article published by Reuters on Monday. Banks are buying the renminbi and selling the US dollar to make it harder to short the renminbi and support stocks in China-based companies.
Should you buy Nio stock now?
Despite Tuesday’s gains, Nio stock is still down about 42.5% from last year and 90% from its highs reached in early 2021. The company’s valuation has been significantly affected by China’s unfavorable macroeconomic conditions, but it remains unaffected. It’s a low-risk investment even at current levels.
NIO PS ratio (forward) data by YCharts.
Based on this year’s projected sales, Nio may seem cheap for a company that is posting solid growth in quarterly sales and vehicle deliveries. However, the business is still in the red, and there is still room for speculation as to the path to profitability.
Macroeconomic and geopolitical risks associated with the Chinese market further complicate the situation. Nio’s rally could continue if the country’s government provides additional economic support, but there is little visibility into what will happen on that front.
For risk-tolerant investors looking for a rebound in the EV market, Nio may be worth buying at its current share price. But if you’re resistant to the additional risk factors associated with Chinese stocks, this EV maker probably isn’t a good fit for your portfolio.
Keith Noonan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nio. The Motley Fool has a disclosure policy.
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