Chinese tech stocks are primed for a comeback for JPMorgan, Jefferies on tempting risk-reward trade-off

JPMorgan Securities says most of the negatives have been priced in and positive earnings revision beckons

BlackRock is staying away from large dominant players for a little bit longer, preferring those more shielded from regulatory heat

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Flags are raised outside the Exchange Square, home to the local stock exchange in Central, Hong Kong. Photo: Robert Ng

Published: 7:30am, 28 Jun 2021Updated: 7:30am, 28 Jun 2021

Chinese technology stalwarts could make a market comeback in the second half as cheapening valuations entice analysts and money managers who see a favourable trade-off in risk-reward scenario.

The industry has battened down the hatches and kept a low profile since November, when the government foiled the blockbuster listing by Ant Group. While the regulatory clampdown has become the market’s biggest bugbear, the current consolidation could be a springboard for the next rally.

“The valuations of Chinese tech giants were actually much lower than in the US” given the regulatory campaign, said Zhu Chaoping, global market strategist in Shanghai at JP Morgan Asset Management. “It could suggest better growth prospects over the long term, as the lower prices offer some downside protection to investors.”

Large cap stock prices stopped declining in May while investors waited for regulatory clarity to assess growth prospects, he said in a phone interview.

The Hang Seng Tech Index, a gauge which tracks 30 of China’s technology bellwethers, has risen about 9 per cent from a six-month low in mid-May as optimism returned. The price-earnings multiple has compressed to 27.5 times from a peak of 45.6 times in mid-February, close to a low of 24.5 times on May 14.