A number of Wall Street investment banks have listed their top China tech stocks for the year ahead.
Analysts from Citi, Jefferies and Stifel considered themes such as e-commerce spending, the price of online advertising, the country's five-year plan — which aims to stimulate domestic consumption — and regulation.
In a note published Tuesday, Jefferies analysts lead by Thomas Chong said Asia-Pacific internet stocks (excluding Japan) were at a crossroads, creating a "major opportunity" for investors.
Of the top picks from the three banks, a number of names kept coming up and all three banks highlighted one stock in particular.
Get Philly local news, weather forecasts, sports and entertainment stories to your inbox. Sign up for NBC Philadelphia newsletters.
- All of the analysts picked Chinese e-commerce giant Alibaba, with Jefferies highlighting its diversification into services such as parcel-tracking and investments in companies like electronic component-maker Tongda. Alibaba is also a top pick from Citi, with analysts praising its "solid" growth outlook and "attractive" valuation in a Jan. 3 note. Stifel analysts said that despite the Chinese government's anti-monopoly probe, reported in December, it expects Alibaba's fundamentals to "remain strong," in a note published Tuesday. Alibaba founder Jack Ma has reportedly not been seen in public since October, but is "lying low" for the time being, per a CNBC report Tuesday.
- Tencent was another stock to watch. Jefferies noted its popularity as a gaming platform and rising average revenue per user, and was also impressed by its overall share of the online ad market. The integration of Tencent's mini programs — an app within WeChat allowing merchants to run online stores — was popular with Citi analysts, who also said the company would benefit from China's aim to digitize traditional industries, part of its latest five-year plan. Jefferies and Citi rated Tencent a buy.
- Stifel analysts recommended holding stock of streaming service Tencent Music, a joint venture between Tencent and Spotify, while Jefferies rated it as a buy. Analysts expect growth to come from long-form audio and online advertising, among other factors.
- Stifel and Jefferies rated e-commerce site JD.com as a buy. "JD has a proven business model to capture long-term opportunities in the grocery segment," Jefferies analysts wrote, while Stifel expects its margins to gradually improve in the coming years.
- Cloud businesses Kingdee and Kingsoft Cloud are also among the Wall Street picks. Citi analysts estimated Kingdee's cloud revenue would hit 5 billion Chinese yuan ($774 million) by 2022 and said it had the potential to take market share from overseas rivals. Kingsoft provides cloud services to ByteDance, which owns short video-sharing app Douyin (the Chinese version of TikTok), and Jefferies said its cloud revenue could see an estimated compound annual growth rate of more than 40% from 2020 to 2023.
Citi's analysts preferred H-shares, or stocks openly traded in Hong Kong, over A-shares, which refers to Chinese companies trading on the Shanghai or Shenzhen exchanges.