May 18, 2022: -JPMorgan has elevated China’s technology sector on the back of diminished risks two months after calling the industry “uninvestable.”
Analysts at the U.S. investment are inventing the ratings for seven Chinese internet firms’ stocks, which also include Tencent, Alibaba, Meituan, NetEase, and Pinduoduo, from “underweight” to “overweight.” They believe these shares could outperform the average total returns of stocks in the analyst’s scope of coverage over the coming 6 to 12 months.
On Monday, the bank’s China Internet analyst Alex Yao and a team said that “huge uncertainties should begin to abate on recent regulatory announcements” much sooner than expected.
Digital entertainment, local service, and e-commerce stocks will be “the first batch of outperformers,” the bank said.
“We think key risks to the sector have diminished, particularly for regulatory risk, ADR delisting risk, and geopolitical risk,” the JPMorgan analysts said.
In March, Yao and a team said they considered the sector “uninvestable” for the coming 6 to 12 months, a call that Bloomberg reported was published in error.
Prior Bank’s March call, Chinese internet stocks were hammered by months of regulatory uncertainty and worries regarding supply chain disruptions from the mainland’s zero-Covid policy.
The Hang Seng Tech index, tracking the most prominent Hong Kong-listed technology stocks, has over 27% this year on Monday.
Concerns over a higher interest rate environment as major central banks look to tame hot inflation have been an overhang for the global tech sector. Increasing rates tend to make future earnings for growth companies look less attractive.
The tech-heavy Nasdaq Composite on Wall Street has decreased by over 25%.