JPMorgan has upgraded its view on China’s Alibaba, Tencent and Meituan

This September 25, 2020 photo shows Jack Ma, founder of the Alibaba Group, attending the opening ceremony of the 3rd All-China Young Entrepreneurs Summit in Fuzhou, Fujian Province, China. Alibaba is one of the Chinese technology stocks recently upgraded by JPMorgan analysts.

Liu Ming | China News Service via Getty Images

Just two months after JPMorgan called the sector “non-investable”, it upgraded Chinese technology stocks on the back of reduced risk.

U.S. investment analysts have raised the stock ratings of seven Chinese Internet firms, including Tencent, Alibaba, Maituan, Netizens and Pindudu, from “underweight” to “overweight.” This indicates that they believe that these stocks may exceed the average total return of the stock in the next six to 12 months with the opportunity for analyst coverage.

In a note released Monday, Alex Yao, the bank’s China Internet analyst, and a team said “there should be a significant reduction in the uncertainty behind the recent regulatory announcements” that 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 key risks in the sector have declined, particularly in terms of regulatory risks, ADR delisting risks and geopolitical risks,” JPMorgan analysts said.

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In March, Yao and a team said they considered the sector “unworkable” for the next six to 12 months, a call that Bloomberg later mistakenly reported. JPMorgan’s Yao did not immediately respond to CNBC’s request for comment on the claims made in the Bloomberg report.

Even before the bank’s March call, Chinese internet stocks had already been hit – due to months of regulatory uncertainty and concerns over disruption in the supply chain from the mainland’s strict zero-covid policy.

The Hang Seng Tech Index, which tracks the largest stocks of Hong Kong-listed technology, fell more than 27% this year as of Monday’s close.

Concerns about the high interest rate environment as major central banks seek to control hot inflation have also been an overhang for the larger global technology sector. Increasing rates make future earnings less attractive for companies.

Tech-heavy Nasdaq Composite fell more than 25% on Wall Street until Monday’s close.

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