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.
- 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.