Shares of Chinese stocks, including Tencent (OTC: TCEHY), PDD Holdings (NASDAQ: PDD), and JD.com (NASDAQ: JD), rallied to start the week, up 5.4%, 9.5%, and 5.8%, respectively, as of 3:50 p.m. ET Monday.

The synchronous rise in Chinese stocks followed a favorable regulatory development for private Chinese companies and stocks. In addition, Tencent announced the early release of a hit mobile game receiving lots of buzz.

Making Hong Kong a major financial center again

Over the weekend, the South China Morning Post reported that the China Securities Regulatory Commission would seek to facilitate more listings on the Hong Kong exchange, after China's new regulator introduced a series of reforms aiming at setting stricter requirements for listed firms on the Hong Kong Stock Exchange. The move was broadly seen as encouraging, as these measures are aimed at reattracting foreign capital to Hong Kong and China.

Since 2021, the Chinese government has taken some fairly anti-free-market measures against the country's large technology companies. But that resulted in these stocks selling off to trade at bargain valuations as foreign capital fled.

With that context, any gesture on the part of government officials seen as market-friendly or encouraging foreign capital flows has the potential to light a fire under these cheap stocks. And it looks as though we are seeing an example of that today.

In addition to the across-the-board good news on China stocks, Tencent also had some notable company-specific news. It announced it would be releasing the mobile version of the hit game "Dungeon & Fighter Mobile" (DnF) earlier than scheduled on May 21, after a very positive response to its beta test.

Of note, DnF was developed by Korea-based Nexeon as a computer game in 2005. But Tencent, aside from owning many games studios itself, also publishes games of other companies for the China market. Tencent will be publishing the highly popular game for mobile in May, and there appears to be a lot of optimism around its release. After all, the original release of the game has 850 million registered users globally, and the free-to-play game has brought in $22 billion in cumulative revenue since it launched.

Nexeon CEO Junghun Lee said in a press release:

After the announcement, Tencent received a positive analyst note. Jefferies analyst Thomas Chong said the launch could help turn around Tencent's domestic games revenue, which was down 3% last quarter. Chong also noted Tencent has other emerging franchises that should spur growth as well, as China's regulators appear to be taking a more lenient attitude toward game approvals in 2024. Chong also named Tencent as his top pick in his coverage universe.

Chinese stocks are cheap

Souring U.S. relations, government heavy-handedness, and a stalling economy have sent Chinese stocks down to bargain-basement valuations.

In response, many prior Chinese growth stars pursued two options. One is turning toward foreign markets: PDD Holdings did this, changing its name from Pinduoduo and redomiciling in Ireland, while launching its Temu e-commerce site in foreign markets, such as the U.S.

Another option Chinese tech stocks are pursuing is slowing growth, but focusing their business and expanding margins while returning cash to shareholders. Tencent and JD.com appear to be doing this, with Tencent raising its dividend by 42% recently while more than doubling its share repurchases. JD.com, for its own part, disclosed last week it had repurchased $1.2 billion worth of stock in the first quarter of 2024 alone. At that rate, JD could retire over 11% of its shares this year at its current market cap.

It's understandable that U.S. investors would be wary of Chinese stocks. However, for those comfortable taking on that geopolitical risk in parts of their portfolios, many high-quality Chinese names look like bargains now, especially compared to their U.S. counterparts.

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Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends JD.com, Jefferies Financial Group, and Tencent. The Motley Fool has a disclosure policy.

Why Chinese Stocks Tencent, PDD Holdings, and JD.com Surged Today was originally published by The Motley Fool