Stock picking

Why is investing in China worthwhile according to JPMorgan? 5 actions for 2024

Why is investing in China worthwhile according to JPMorgan? The Chinese economy could recover after a disappointing 2023.
Despite Moody's decision to cut China's debt rating outlook and an ongoing crisis in the real estate market, government sources believe the 5% growth target is achievable.
According to JPMorgan experts, the Chinese stock market is going through a phase of rapid transformation and some large Chinese stocks could offer interesting opportunities for investors.
Among the companies excluded from the list, Alibaba stands out, which according to the bank is no longer worth buying.
In its place, JPMorgan lists 5 more stocks for 2024 as a “timely buy” in the current evolving economic landscape.
Alibaba is no longer worth buying Alibaba, once the undisputed giant of the Chinese e-commerce sector, is going through a period of difficulty and uncertainty.
The decision to abandon plans for an IPO in the cloud sector led to a series of strategic changes within the company, triggering a collapse in the shares in recent weeks.
Additionally, growing competition in China's e-commerce market – with rising players like PDD – has helped weaken Alibaba's position.
JPMorgan, despite the share decline, believes there is still value in Alibaba's technology fundamentals and maintains a positive price target of $125 for a potential 70% upside.
According to analysts, the stock should be kept in your portfolio (hold) but this is not the right time to buy the stock.
Chinese stocks: JP Morgan's list JPMorgan's list for "early buys" is made up of stocks belonging to different sectors but with interesting growth prospects.
1) Tencent Tencent emerges as the undisputed star of JPMorgan's list, representing a key component in the iShares MSCI China ETF (MCHI).
Despite its recent decline in the tech sector, Tencent stands out with its diverse presence spanning gaming, social media and financial services.
In the third quarter of 2023, Tencent reported impressive total revenues of RMB 154.6 billion ($21.5 billion), marking a significant increase of 10% compared to the same period last year.
Although operating profit saw a slight decline of 6%, the adjusted data reveals an increase of 36%, highlighting notable margin expansion and solid revenue growth.
Ma Huateng, President and CEO of Tencent, commented positively on the performance, highlighting strong revenue growth, margin expansion and targeted investments in artificial intelligence.
Tencent thus positions itself as a versatile giant, capable of adapting to changing market dynamics and exploiting the opportunities offered by artificial intelligence for the benefit of both the company and its corporate customers.
In this context of resilience and strategic ambition, Tencent presents itself as an investment opportunity that could promise significant returns in the Chinese equity landscape.
2) NetEase NetEase, listed in the US and an integral part of the KraneShares CSI China Internet ETF (KWEB), emerges as an attractive investment option, according to analysis by JPMorgan.
The company, which specializes in online games and Internet services, occupies an important position in the dynamic Chinese market.
NetEase stands out as a leading provider of internet services and games with a focus on premium content.
Its vast, expertly managed gaming ecosystem includes some of the most popular and enduring offerings on mobile and PC, both in China and globally.
With one of the largest game research and development teams in the industry, NetEase consistently delivers superior gaming experiences, inspiring players around the world and creating a vibrant community.
In addition to games, NetEase's service offerings extend to its subsidiaries, including Youdao, an intelligent learning company with cutting-edge technology; Cloud Music, a popular online music platform with a vibrant community, and Yanxuan, NetEase's consumer lifestyle brand.
This diversification and presence in key sectors make NetEase a fascinating investment opportunity in the Chinese equity landscape.
3) Kuaishou Kuaishou, listed by JPMorgan and component of the KraneShares CSI China Internet ETF (KWEB), presents itself as an attractive investment option, despite the competition in the online entertainment sector.
Data from the third quarter of 2023 confirms the company's solidity, with a significant increase in daily active users (DAU) and monthly active users (MAU).
Daily users rose to 386.6 million, an increase of 6.4% compared to the same period in 2022, while monthly users reached the figure of 684.7 million, recording an increase of 9.4%.
The financial results also highlight impressive growth in e-commerce turnover, which reached RMB 290.2 billion, up 30.4% from 2022.
With a 20.8% increase in total revenue and an improvement in gross profit margin to 51.7%, Kuaishou demonstrates solid financial management.
Looking to the future, Kuaishou aims to innovate and explore new growth opportunities, consolidating its prominent position as a community and social content platform, promising a bright future for investors and players in its ecosystem.
4) Lenovo Lenovo, a global PC manufacturing giant, represents a further investment opportunity according to JPMorgan, thanks to signs of recovery and stabilization in the PC sector.
Despite quarterly net income down 54% from a year earlier, the company said the PC business is showing signs of consolidation and is well positioned for a year-over-year recovery in the current quarter.
Lenovo announced a dividend of $0.21 per share, with a sustainable payout outlook, as indicated by its dividend payout ratio as of September 30, 2023, which stands at 61%.
The company has a robust history of dividend payments since 2000, with a trailing 12-month dividend yield of 3.97%.
The analysis of growth and profitability parameters highlights a positive trajectory, with an annual dividend growth rate of 10.80% over the last three years and an average revenue growth of 7.00%.
5) Xiaomi Xiaomi, a key component of the MSCI China Information Technology ETF (CHIK), is the last of the 5 Chinese stocks on JPMorgan's list.
Famous for its electronic products, the company presents promising prospects according to experts in a phase of economic recovery.
Its current price-to-earnings (P/E) ratio of 21.91, higher than the tech sector average (15.42X), signals a higher valuation, but the stock's high volatility suggests the possibility of future opportunities of investment.
Thanks to a significant beta, an indicator of the variability of the shares compared to the market, Xiaomi could offer interesting investment spaces in the future.
The expected 40% profit growth over the next few years positions Xiaomi as a high-yield stock, indicating possible increases in cash flows and a higher stock valuation.
read also An explosive week is coming for the markets.
The reasons are 5 DISCLAIMER The information and considerations contained in this article must not be used as the sole or main support on which to make decisions relating to investments.
The reader maintains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to public savings.

Author: Hermes A.I.

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