UBS says these Chinese internet stocks are a 'buy' as regulatory fears may ease

Published Wed, Oct 27 20217:30 PM EDT

UBS said investor anxiety around China's regulatory crackdown will likely ease – and has named its most favored Chinese internet stocks to buy. The bank said China's tightening regulation over technology companies is broadly in line with global trends. It added that more countries — particularly those in Asia — could follow China in enhancing laws on antithrust and data protection. "Chinese equities may be pricing in too much concern on regulation," UBS said in a Oct. 20 report. "As other countries follow suit on regulation, anxiety around China's regulatory motivation may ease, underpinning valuations particularly for Chinese internet," the bank added. UBS gave a "buy" rating to the following Chinese internet stocks: JD.com : The bank said the company faces less regulatory pressure compared with its larger e-commerce peers, and its multichannel strategy remains underappreciated by the market. Baidu : The company's online advertising is recovering, and it is making progress on its cloud and car businesses, said UBS. Baidu also faces limited regulatory risks, the bank added. Meituan : The bank said it is confident about the prospects for Meituan's long-term growth and core business margins. Alibaba : UBS said the stock is attractive because Alibaba would be less affected by further tightening in regulations, and could even benefit as its competitors come under pressure. Tencent : The firm faces headwinds in advertising, mobile games and fintech products — but it is a "high quality" company that can navigate the challenges better than most peers, said UBS. Bilibili : Regulatory risk the video-sharing company faces could be bottoming out, the bank said, adding that it likes Bilibili's growth potential. NetEase : UBS said it likes the company's long-term competitiveness in in-house gaming production, and regulatory overhang on the gaming sector could soon ease. Long-term effect of China's regulations China has in the last few months tightened regulations aimed at the tech sector, targeting areas such as monopolistic practices as well as the collection and use of data. The move wiped around $1 trillion off the market capitalization of Chinese stocks , said UBS. Internet firms have slowed down the pace of investments into new areas, while adjusting their businesses to comply with the new rules. "It remains to be seen whether they can continue to be as innovative and aggressive long term, and maintain growth," said the Swiss bank. A "very select" few companies would have to change their business models significantly, said UBS. That includes companies in online education or financial technology, said the bank.

Share prices of Chinese tech companies Baidu, Alibaba and Meituan among those shown at the Exchange Square in Hong Kong on March 23, 2021.

Paul Yeung | Bloomberg | Getty Images

UBS said investor anxiety around China's regulatory crackdown will likely ease – and has named its most favored Chinese internet stocks to buy.