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Alibaba and Chinese tech companies could see ‘continued positive revaluation’

Alibaba and Chinese tech companies could see ‘continued positive revaluation’

It is learned on December 20 from JinrongJie (Financial World), Alibaba shares narrowly outperformed the broader market on Monday. There are signs that overall Chinese tech stocks could be poised for further gains after a difficult two years, according to a team at UBS.

Since the end of 2020, Alibaba and other Chinese technology stocks have been falling. Severe COVID-19 restrictions keeping consumers locked down for a long period into 2022 only made the recent situation worse.

But a team led by Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note on Monday, there are signs that the backlog may now be easing.

“China’s internet sector has upside potential,” the UBS team wrote. “After optimizing operating efficiencies in the difficult environment of the past few years, we believe Chinese internet platforms can operate at higher profit margins.”

The optimism about Chinese e-commerce giant Alibaba and its peers can be chalked up to two specific developments in regulation and health policy. Alibaba is the titular leader of China’s high-growth tech industry.

First, there was news on December 15 that inspectors from the US auditing regulator, the Public Company Accounting Oversight Board (PCAOB), had been given permission to fully inspect the books of some Chinese companies. The move removes the threat of forced delisting of Alibaba and other stocks in the United States.

Haefele’s team wrote: “If more progress is made, we expect China’s internet sector to continue to receive positive revaluation.” “As regulatory pressure fades, investors’ focus may return to fundamentals.”

Then there is the issue of health policy. A strict “zero-covid” policy put many cities into lockdown when covid infections rose and slowed growth in the world’s second-largest economy. That led to Alibaba’s worst quarters ever.

But that narrative has changed. Signals that the reopening of the economy will persist have fueled gains in Chinese technology stocks in recent weeks.

The UBS team wrote: “While we remain neutral on China equities in our Asia portfolio, we believe the internet will directly benefit from China’s gradual exit from its zero-crown policy. “

The analysts at UBS aren’t the only ones who are bullish on Chinese internet stocks.
At least Alibaba is still the darling of analysts. More than 50 analysts surveyed by FactSet have an average rating of “buy” on Alibaba stock. With an average price target of $134 and opening near $90 on Monday, analysts expect the stock to rise more than 50% from current levels.