Macquarie Upgrades Chinese Internet Stocks

Investing.com — Macquarie has upgraded several Chinese internet stocks, citing improved earnings visibility and ongoing policy support from the Chinese government.

Macquarie analysts noted on Monday that there is upside potential for the sector, which has been trading at half the valuation levels seen in early 2023, despite stronger fundamentals.

According to the brokerage, key players in e-commerce, travel, and local services sectors are positioned to benefit from both economic stimulus and operational efficiencies.

Although revenue across the sector has faced challenges due to broader macroeconomic factors, larger platforms have demonstrated resilience through operating leverage and cost optimization, resulting in an upward trend in earnings. Macquarie’s analysts have raised their valuations for several stocks, aligning them with the outlook for fiscal year 2025, where they anticipate further government actions to stimulate economic growth, especially in consumption and digital services.

Among the top picks, Macquarie upgraded Alibaba (HK:9988) and PDD (NASDAQ:PDD) to “outperform” from “neutral.” Other favored stocks include JD (NASDAQ:JD), Meituan (HK:3690), and DiDi Global (OTC:DIDIY). These companies are expected to benefit from stabilizing e-commerce competition and sustained dominance in local services. Meituan and DiDi are viewed as offering “quality at a discount,” with strong market positions and earnings potential.

The brokerage highlighted the potential for overseas expansion as a long-term growth driver, with companies like Tencent, Pinduoduo, and Trip.com Group Ltd (HK:9961) well-positioned to seize international opportunities. Investors are encouraged to consider the sector’s global prospects, despite short-term volatility from geopolitical tensions, such as the U.S. elections and trade policy, which may present buying opportunities.

Conversely, Macquarie remains cautious about the online healthcare and logistics sectors, downgrading Alibaba Health and JD Health due to concerns over competitive pressures and profitability.