Research analysts at JPMorgan Chase confirmed a flurry of Chinese internet stocks that were deemed “uninvestable” just two months ago in a dramatic shift in sentiment for the sector.
In a series of ratings changes on Monday, technology analyst Alex Yao and his team upgraded seven companies to “overweight” after assigning them “underweight” ratings in September. Three. JPMorgan also upgraded some other Chinese stocks from “lightweight” to “neutral”.
The “overweight” classification usually means that an analyst recommends that their client hold more stocks than the relevant benchmark index rather than less. The labels are similar to the change from “sell” to “buy”.
Ratings on NetEase, Tencent, Alibaba, Meituan, iQIYI, Dingdong and Pinduoduo all upgraded on Monday, as companies began to recover from a sharp sell-off earlier this year. NetEase fell more than 30% in the year to March 15, but has since recovered and reduced its year-to-date losses to about 10%.
Yao justified the change by pointing to recent positive regulatory announcements in China, which came earlier than he and his team anticipated. For example, Beijing in April fix their audit secrecy laws in an effort to prevent Chinese companies from being delisted on US exchanges.
“The significant uncertainties facing the industry will begin to ease thanks to recent regulatory announcements,” Yao and his colleagues wrote in the note published Monday.
JPMorgan declined to comment beyond the research report.
The upgrade comes after several reports written by Yao in March described some Chinese internet stocks as “uninvestable” for a period of six to 12 months.
The word “uninvestable” was taken from 24 research reports published by the bank, which then described the companies as “unattractive”. However, “uninvestable” was included in four of the reports because of what the bank described as an error in its research department.
Referring to the language change, which was first reported by Bloomberg, JPMorgan said it stood by its research and reports containing an independent analyst’s view of the field.
Other companies mentioned by the analyst have less impressive upgrades. Baidu and Zhihu have switched from “underweight” to “neutral”, which is recommended to be “overweight” in the first three months of the year.
