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HSBC named six Chinese internet stocks it says to buy — predicting that each have upside of at least 27%. Valuations of Chinese internet stocks fell 5% between mid-June and the start of September, the bank said, and it recommended looking at “micro” factors affecting stocks rather than the broader macroeconomic environment — such as improved market share and new revenue streams. HSBC’s picks are “opportunities with good value,” the analysts led by Charlene Liu said in a research note dated Sept. 1. Online marketplace Pinduoduo is one of the bank’s top preferred names. “PDD has the most promising but undervalued top-line growth … as a market share gainer domestically and internationally,” the analysts said. Pinduoduo has an estimated 27% upside — the figure is the percentage difference between the current share price and HSBC’s target price, with the bank expecting it to take six to 12 months for a stock to reach its target price. As well as Pinduoduo, the bank said shopping platform Meituan “delivered better-than-expected ad revenue growth in 2Q 2023.” HSBC gave Meituan an estimated 49% upside. Tencent , with a 35% upside according to HSBC, “delivered a strong beat in ad revenue,” the analysts said. Mini games, found within Tencent’s WeChat app, “are gradually becoming another important driver that was underappreciated by the market,” the bank added. Tencent, along with shopping giant Alibaba , are reaping the benefits of investing into large language models, according to HSBC. “BABA [Alibaba] has improving earnings outlook and enjoys valuation upside from restructuring exercise,” the analysts said, and they gave Alibaba a 52% upside. HSBC gave JD.com a 47% upside and said “stringent cost control” helped it beat second-quarter estimates. Short video app Kuaishou , a preferred stock for HSBC for its gains in advertising market share and mix of revenue streams, has a 39% upside, according to the bank. —CNBC’s Michael Bloom contributed to this report.
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