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Morgan Stanley says there's value in China tech stocks, here are its top 5 picks

Published Wed, Sep 22 202110:31 PM EDT

Yen Nee Lee @YenNee_Lee

China's regulatory clampdown on the technology sector could continue — but Morgan Stanley said there's value in buying some Chinese internet stocks over the next 12 to 18 months. Regulatory tightening by Beijing has so far targeted areas such as monopolistic practices, the use of data, and social ills, including online addiction. Major Chinese tech names such as Alibaba , Tencent and Didi were most severely hit, and their share prices tanked following the regulatory measures. Company earnings could be dampened in the coming years, said Morgan Stanley. But most "worst-case scenarios" appeared to have been factored into the share prices, the bank added. Stocks to pick Here are Morgan Stanley's most preferred Chinese internet stocks: Tencent : Morgan Stanley said the tech giant has been resilient, and the impact from game time restrictions on minors has been smaller than feared. Tencent's investments in business service and cloud infrastructure will bring in future money-making opportunities, the bank said. Pinduoduo : The e-commerce company's grocery business has grown faster than expected, and that could continue after the Covid-19 pandemic, said Morgan Stanley. But a more stringent regulatory environment could weigh on margins, the bank added. Meituan : The investment bank said it likes the company for its sustained leadership in core businesses including food delivery, and its efforts to expand into new areas such as groceries. But it warned that potential increase in rider costs will lower the food delivery giant's long-term profitability. JD.com : The e-commerce giant will benefit as online sales of consumer goods grow rapidly in China, said Morgan Stanley. JD.com is also less exposed to regulatory risks around anti-trust, data security and social security benefits to workers, said the bank. NetEase : China's restrictions on game time for minors are not likely to extend to adults, and that