SocGen adds two China internet stocks to its 'common prosperity' play

Published Wed, Feb 23 20228:35 PM EST

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Societe Generale said regulatory risks have subsided enough for it to add two Chinese internet names to a strategy for playing Beijing's policy trends. It's the French investment bank's attempt to recalibrate a basket of 30 stocks expected to benefit from "common prosperity" — a policy that aims for moderate wealth for all, rather than just a few . Beijing's emphasis on the policy over the summer contributed to sharp sell-offs in Alibaba and after-school tutoring stocks. So far, even SocGen's common prosperity play has sold off, falling by 7.8% between the strategy's launch in early September and the report's publication in mid-February. That's worse than the CSI 300 — an index of the largest mainland China-traded stocks — which fell by 5.4% during the same time, the report said. This year, SocGen has joined other economists in expecting Beijing will focus more on supporting growth. The analysts expect slightly lower policy risks this year for the internet industry, among others, while financials and new energy vehicles remain industries with policy support. "Entering the second year of the [common prosperity] reforms, we expect to see less policy uncertainty and more considerate implementation," Wei Yao, head of research and chief economist, Asia Pacific, at SocGen and a team said in a report Friday. "We believe there is no end to the tightening," the analysts said. But they said they have greater clarity on the direction of regulation and the reduced risks around an overseas listings structure, while the sell-off has made internet stocks relatively cheap. As a result, they've decided to add two internet stocks to their investment strategy: The Hong Kong-traded shares of Chinese e-commerce and logistics company JD.com . The U.S.-traded shares of Chinese group-buying e-commerce company Pinduoduo . Both names made the ranks of the top 10 holdings for SocGen's common prosperity stock basket, which is based on companies' financial health, level of policy risk and market value. The basket's top three holdings are state-owned giant Industrial and Commercial Bank of China (ICBC), electric vehicle battery maker Contemporary Amperex Technology (CATL) and Ping An Insurance. While these three stocks have all increased in price since early September, JD.com and Pinduoduo have fallen. The two new additions replace battery manufacturer Eve Energy and electronics component producer Naura Technology, whose market capitalizations had fallen close to $20 billion, according to the report. — CNBC's Michael Bloom contributed to this report.

Chinese e-commerce phone apps clockwise from top left: Alibaba Group's Taobao, Pinduoduo, Alibaba, Alibaba's Tmall, JD.com and Alibaba's secondhand market, Idle Fish.

Chan Long Hei | Bloomberg | Getty Images

Societe Generale said regulatory risks have subsided enough for it to add two Chinese internet names to a strategy for playing Beijing's policy trends.