JPMorgan upgrades its view on Chinese companies Alibaba, Tencent and Meituan

Jack Ma, founder of Alibaba Group, attends the opening ceremony of the 3rd All-China Young Entrepreneurs Summit in Fuzhou, China’s Fujian Province, on Sept. 25, 2020. Alibaba is among Chinese tech stocks recently upgraded by analysts at JPMorgan.

Lyu Ming | China News Service via Getty Images

JPMorgan has upgraded Chinese tech stocks on lower risks, just two months after calling the sector “uninvestable.”

Analysts at US Investments have upgraded the ratings for the shares of seven Chinese internet companies, including Tencent, Alibaba, Meituan, NetEase and Pinduoduo, from underweight to overweight. This indicates that they believe these stocks could outperform the average total return of stocks in the analyst’s scope over the next six to 12 months.

In a note issued on Monday, the bank’s China internet analyst Alex Yao and a team said “significant uncertainties should abate” following recent regulatory announcements, which came earlier than expected.

Digital entertainment, local services and e-commerce stocks will be “the first batch of outperformers,” the bank said.

“We believe that the key risks to the sector have decreased, particularly in relation to regulatory risk, ADR delisting risk and geopolitical risk,” said analysts at JPMorgan.

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Back in March, Yao and a team said they viewed the sector as “uninvestable” for the next six to 12 months, a claim Bloomberg later incorrectly released. JPMorgan’s Yao did not immediately respond to CNBC’s request for comment on the claims in Bloomberg’s report.

Even before the bank’s call in March, Chinese internet stocks were already taking a hit – beset by months of regulatory uncertainty and worries about supply chain disruptions due to the mainland’s strict zero-Covid policy.

The Hang Seng Tech Index, which tracks the largest tech stocks listed in Hong Kong, was down more than 27% this year as of Monday’s close.

Concerns over a higher interest rate environment as major central banks seek to tame hot inflation also held up for the broader tech sector globally. Rising interest rates tend to make future earnings less attractive for growth companies.

Wall Street’s tech-heavy Nasdaq Composite fell more than 25% on Monday. JPMorgan upgrades its view on Chinese companies Alibaba, Tencent and Meituan

Jane Marczewski

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