Analysts Expect Robust Rebound From Alibaba, Other Chinese Internet Stocks Courtesy Policy Stimulus, Easing Regulations

  • Daiwa Capital Markets analysts see the Chinese internet stocks making the most out of the policy stimulus with easing regulations helping improve earnings visibility from 2H22 onwards, amid the cyclical economic uptrend.
  • The so-called platform economy is one of the most promising areas for policymakers to boost growth, given restrictions on other possibilities by local governments' strained fiscal budgets, said the analysts.
  • Daiwa upgraded "communication services" traded on Hong Kong's markets to Overweight from Neutral, with Alibaba Group Holding Limited BABA and Meituan MPNGY, a food delivery platform being their picks for a sector that includes online businesses.
  • Also Read: Bernstein Upgrades Alibaba Citing Likeliness Of Ant IPO Soon, Improved GMV Share
  • Daiwa analysts saw the internet giants delivering positive earnings surprises for the June quarter as they spent cautiously, trim headcount, and scaled back some operations.
  • The earnings forecasts for members of the Hang Seng Index for the year were dragged down noticeably by internet names, said the Daiwa analysts.
  • "Nevertheless, as sharp downward earnings revisions have eased in the past two months, we believe the consensus forecasts have priced in most macro headwinds," particularly given the improving clarity over regulations, they said.
  • "We expect earnings revisions for the [index and the internet sector] to stabilize or even improve for the rest of the year."
  • While Beijing's strict Covid policy remains a significant downside risk for the economy and markets, "China's policy reflation [will] eventually win the tug of war, and the economy will continue to recover," said Alpine Macro analyst. 
  • "China's regulatory attack on the tech sector has passed its peak. The government's desperate efforts to revive economic growth also rule out additional restrictive measures targeting these companies, at least in the near term."
  • Price Action: BABA shares traded lower by 1.01% at $101.74 premarket on the last check Thursday.
  • Photo by  Rico Shen via Wikimedia
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