A JPMorgan Chase & Co analyst, who was previously bearish on China's tech sector, is now predicting a significant increase in stock prices.
What Happened: Alex Yao, the co-head of Asia TMT research at JPMorgan, has made a remarkable shift in his stance on China's tech sector. Yao, who was once skeptical about the sector's potential, is now forecasting a 20-25% increase in stock prices, reported Bloomberg on Wednesday.
Yao attributes this potential growth to an improved cost structure and less aggressive competition. He also emphasizes the significance of macroeconomic developments in stabilizing the sector's share price trend.
This change in tone from a notable skeptic like Yao is indicative of a broader shift in sentiment toward China's tech market, which has been underperforming for several years. Major players like Tencent Holdings Ltd
Despite uneven growth in China, signs of economic recovery such as improving consumption and robust exports are providing some reassurance to investors. However, concerns remain about the potential impact of geopolitical risks and a growing price war in China's emerging artificial intelligence market.
"The top-down view is that if macro recovers, then the e-commerce names will benefit from the cyclical recovery of consumption," Yao said. "This time the theme is China macro stabilization."
Yao's previous bearish call in 2022, which included downgrading 28 firms like Tencent and Alibaba Group Holding Ltd.
Despite lifting some ratings shortly after, the term "uninvestable" became closely linked with his analysis. Now, with a more optimistic outlook, Yao believes that sustained earnings growth could reward investors in the long run.
"If the sector is able to grow their earnings at, let's say, teens or even twenties, over the long run, I think people should reward those corporates for the earnings sustainability," Yao said.
Investors can benefit from China's growth by diversifying their portfolios with ETFs that offer exposure to the country's development. ETFs such as KraneShares CSI China Internet ETF
Why It Matters: The shift in Yao's outlook comes at a time when Nasdaq is intensifying scrutiny on small Chinese and Hong Kong IPOs to prevent the volatility experienced in 2022. This increased oversight aims to ensure the stability of these listings, which could impact investor confidence in the broader Chinese tech sector.
Additionally, JPMorgan Asia Pacific CEO Sjoerd Leenart recently underscored China's critical role in the global economy, highlighting that the country accounts for 19% of global GDP and 48% of Asia's GDP. This reinforces the importance of China's economic performance on a global scale.
Moreover, the China Securities Regulatory Commission has introduced reforms to Shanghai's Nasdaq-style Star Market to align with President Xi Jinping's "new productive force" initiative. These measures aim to enhance the quality of listed companies and promote technological innovation, which could further bolster the tech sector.
A report from the Centre for Economics and Business Research projects that China could become the world's top economy by gross domestic product, or GDP, by 2037. This potential growth underscores the long-term significance of China's tech sector in the global market.
