Alibaba, JD.com, Baidu dip even as J.P. Morgan upgrades Chinese tech on easing 'significant uncertainties'

Alibaba (BABA), JD.com (NASDAQ:JD) and Baidu (NASDAQ:BIDU) fell on Monday even as investment firm J.P. Morgan upgraded Chinese tech stocks, citing an abatement to the "significant uncertainties facing the sector."

Analyst Alex Yao upped the ratings on the sector to overweight, impacting Tencent (OTCPK:TCEHY), Alibaba (BABA), Pinduoduo (PDD), JD.com (JD) and Baidu (BIDU). Other ratings that were raised include KE Holdings (BEKE), NetEase (NTES), Bilibili (BILI), IQIYI (IQ), Dada Nexus (DADA), Dingdong (Cayman) (DDL) and Baozun (BZUN).

Yao noted that "recent announcements" have moved the firm to "stage two" of the model, noting that the "significant uncertainties" should start to ease following recent regulatory announcements, but noted that we're in a very different stage of the pandemic.

"This analysis drives lower short-term earnings paired with Target multiples higher than the trough targets in our 14 March report, but lower than those used at [year-end 2021] due to Common Prosperity impacts," Yao wrote in a note to clients, adding that companies in digital entertainment, local service and e-commerce should start to outperform, though not in the near-term.

"COVID will impact earnings differently in 2022 relative to 2020 due to: logistic and supply chain networks; gaming supply; and consumers' willingness and ability to spend," Yao added, noting that on average, revenue and earnings were cut by 3% and 15%, across the space.

Alibaba (BABA), JD.com (JD) and Baidu (BIDU) fell roughly 0.5% in premarket trading on Monday, while others like Pinduoduo (PDD) and IQIYI (IQ) rose more than 2%.

Yao caveated the upgrades, pointing out that there is likely to be a "significant downside risk" to second-quarter consensus estimates for Meituan (OTCPK:MPNGF), Alibaba (BABA), Pinduoduo (PDD), Baozun (BZUN) and Baidu (BIDU).

Additionally, Alibaba (BABA), Pinduoduo (PDD), Kuaishou (OTCPK:KUASF) and Tencent (OTCPK:TCEHY) are likely to see full-year earnings impacted.

Earlier this month, investment firm Bernstein said that Alibaba's (NYSE:BABA) plan to fix itself and prop up its stock may be paid for by investors.

Comments

[Jon Brien]

Wasn't it GS that called China uninvestable? Or was it these guys?

[Claudius Odermatt]

@Jon Brien it was Morgan Stanley

[Tenaval]

@Jon Brien It was JPM. Alex. Amazing he is still around. And why not, lots of pay for very little very value-add.

[Renkai]

A government that literally can lock down 25 million people for over 2 months is a tough place to predict business growth.

[billyb1980]

@Renkai so a government that can't even control its citizens among rampant riots and looting even when it announces lock downs due to spikes in covid is a great place? 😏

[EliasMouawad]

I told you that the recovery is inevitable. Now even JP Morgan is turning bullish.

[Chris Lau]

China is potentially the impact of world sanctions pre-Taiwan invasion with locking down Shanghai, and JPM 🤡 analysts say buy?

China just posted retail sales *fell* 11.1% on year in April. Why buy before BABA's next key date: May 26 BMO. In addition, the country destroyed real estate wealth. Consumer purchasing power weakened

Get 9.62% Yield With This One Simple Trick
seekingalpha.com/...

[Djreef1966]

@Chris Lau Ya, but they’re re-opening Shanghai, so apparently they’re changing direction based off of these numbers.

[MRD27]

Can we just delist all this garbage from a hostile country?

[Compact]

@MRD27 totally agree,so then longterm investors could finally invest without these china-bashing comments👍

[MRD27]

@Compact yea cause long term investors in these stocks have been so successful. BABA is down since IPO while chinese economy has 10x’d. You people have no idea what your buying and are completely at the whim of the ccp which does not want foreigners to benefit from ownership in their companies

[Gandalf The Investor]

"Alibaba (BABA), JD.com (NASDAQ:JD) and Baidu (NASDAQ:BIDU) fell on Monday even as investment firm J.P. Morgan upgraded Chinese tech stocks, citing an abatement to the "significant uncertainties facing the sector."

Where is the fall?

[DenyDenyCounterAccuse]

Because this moron called them all Un-investable 25% ago before flip flopping back. Now that he’s upgraded them likely down from here. Thanks a bunch JP Morgan

[Tenaval]

@DenyDenyCounterAccuse Yup, I remember Alex. Let's see if the other moronic fund managers jump in to buy because Alex said so

[goodfellasfinancial]

@DenyDenyCounterAccuse at some point, risk outweighs reward. you Keep buying the tech "dip", I will keep adding China. They will both revert to the mean