Haitong International released research reports stating that China's internet sector rebounded last week, with the Hang Seng Tech Index rising by over 20% from September 23 to 27. During the same period, the Shanghai and Shenzhen China Internet ETF (KWEB.US) also increased by 25%. Looking back at the two rebounds in the industry over the past two years, it is believed that most stock prices in the industry have not yet returned to pre-pandemic highs.
Considering that a series of recent policies issued by the authorities may not translate into driving forces for fundamental improvement anytime soon, Haitong International recommends investors to adopt a bottom-up stock selection approach, focusing more on enterprise valuations and fundamental improvement. They suggest paying attention to e-commerce, entertainment, online travel agencies and hotels, education, and online advertising sub-sectors, with a more bullish outlook on PDD Holdings (PDD.US), Meituan-W (03690.HK), JD.com-SW (09618.HK) (JD.US), Tencent (00700.HK), XD Inc (2400.HK), Netease-S (09999.HK) (NTES.US), and New Oriental-S (09901.HK) (EDU.US).
Haitong believes that the competition landscape in e-commerce and local lifestyle services is becoming more rational, with current valuations being attractive. However, forecasts for Kuaishou-W (01024.HK) and Alibaba-W (09988.HK) (BABA.US) have been revised downward, anticipating profit pressures. Regarding whether the recent broad sector recovery can be sustained, the bank believes that attention should be paid to whether recent economic stimulus measures will have a fundamental impact on the industry. It is expected that if macroeconomic momentum strengthens in the coming quarters, the rebound should be sustainable.
