JPMorgan and Morgan Stanley reveal their top U.S.-listed Chinese internet stocks

Published Mon, Jan 22 20246:17 PM EST

Morgan Stanley and JPMorgan named their key China internet picks and the themes to watch right now. Both Wall Street banks indicated that it will be an alpha-driven market for the sector. "For 2024, we think an alpha-driven investment strategy will continue to offer good risk/reward," JPMorgan said in a Jan. 16 note. "We think it is difficult to form a beta-driven investment strategy in 2024," it said, pointing to different drivers for different sub-sectors. Alpha-driven returns show how well a stock has performed compared with its benchmark index, while beta indicates how volatile an asset class is by comparing it with the market as a whole. "2024 should be another year of an alpha-driven market as subpar macro improvement weighs on industry growth. Focus is on resilient content leaders, unique growth opportunities, and AI enablers," Morgan Stanley said in a Jan. 18 note. JPMorgan said its top tradeable themes this year include China's cross-border e-commerce gaining more traction in global markets, the monetization of generative AI, and an increasing focus on shareholder returns. Both banks named the following stocks as their preferred names in the sector. All are traded in the United States. Pinduoduo JPMorgan highlighted Chinese online retailer Pinduoduo 's improved monetization and continued market share gain. It also flagged the increasing value of its global e-commerce arm Temu as it rapidly expands overseas. Morgan Stanley said it forecasts PDD's total revenue to have increased 111% year on year for the fourth quarter in 2023, citing "quality growth and market share gain" for the company. Morgan Stanley's price target is $181, or 27.4% potential upside. JPMorgan's price target is $180, or 26.7% potential upside. Baidu Morgan Stanley described Baidu as the "best AI play" in China. It noted that Baidu's cloud platform is now the largest public artificial intelligence cloud platform in China, and estimates that AI will generate 3 billion Chinese yuan ($4.19 million) in incremental ad revenue this year. JPMorgan said, "We believe Baidu is a good contrarian long case because the valuation multiple and consensus estimates don't seem to have priced in the assumption that Baidu's gen AI will become a mid-term growth driver." Morgan Stanley's price target is $140, or 35% potential upside. And JPMorgan's price target is $215, or 107% potential upside. NetEase JPMorgan said NetEase 's shares are likely to "regain momentum" from the late first quarter of this year, thanks to its new product launch cycle. Morgan Stanley pointed to its steady operating margin expansion and record-high subscription revenue growth in the second to third quarter of 2023. The bank expects 15% game revenue growth this year. Morgan Stanley's price target is $150, or 67.7% potential upside. JPMorgan's price target is $125, or 39.7% potential upside. — CNBC's Michael Bloom contributed to this report.