Regulatory change had come sooner than the analysts had anticipated.
Greg Baker/AFP via Getty Images
Tencent Holdings and Alibaba Group saw their stock jump Tuesday after catching an upgrade by J.P. Morgan analysts.
In a research note on Monday, analysts led by Alex Yao turned positive on a slew of internet stocks just weeks after saying the sector was “uninvestible” for the next six to 12 months.
Yao and his team raised their ratings on Tencent Holdings (ticker: TCEHY) and Alibaba Group (BABA), and NetEase (NTES) to Overweight, up from Underweight in mid-March.
Shares in Alibaba closed up 7% in Hong Kong on Tuesday, while Tencent rose 5.26%. NetEase and Meituan (3690: HK) saw their stocks gain 6.40% and 6.24% respectively.
Investor sentiment on the China Internet sector improved significantly following policy developments in March, Yao wrote in the note. He pointed to Vice Premier Liu’s pro-economic growth statement on March 16 which pledged to support the economy and financial markets after a sharp selloff.
With positive developments, Yao and his team said they think key risks to the sector have diminished, particularly in terms of regulatory risk, the potential delisting of American depositary receipts and geopolitics.
But the analysts said they still expect “significant downside risk” to consensus earnings for the second quarter for some stocks including Baidu , (BIDU) Alibaba and Meituan as Covid-19 restrictions impact revenue and earnings.
Write to Lina Saigol at [email protected]
