Opportunities in Chinese Internet Stocks

VIDEO: Chinese technology stocks have soared this year, but Morningstar analyst Chelsey Tam thinks there are still investment opportunities in the sector

Holly Black 27 August, 2020 | 10:37AM
Facebook Twitter LinkedIn



Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Chelsey Tam. She is an equity analyst at Morningstar in Hong Kong. Hello.

Chelsey Tam: Hi. Thanks for having me.

Black: So, Chelsey, you cover the technology sector, and this has undoubtedly been one of the top-performing winning sectors of this year. How are technology stocks performing in China?

Tam: Well, they are doing quite well actually. If we look at the KraneShares CSI China Internet ETF, on a year-to-date basis, the performance is over 40% and generally speaking, online just performs better than the offline businesses amid Covid.

Black: And within that incredible sector performance have there been some standout top performers for you?

Tam: Yeah. So, for the companies that I cover, I think JD really delivered strong performance with 100% year-to-date share price improvements. So, I think their self-owned logistics and their first party business really provide very reliable services amid COVID-19. We see that the revenue in the first quarter was 21% growth and then, in the second quarter, it still was able to deliver mid-30% growth. And the other one is NetEase. I think the year-to-date performance is 57%. They have about 90% of gross profit coming from gaming. So, gaming is obviously a beneficiary amid Covid as well.

Black: And have there been any weaker areas in the sector?

Tam: Yeah, sure. So, Weibo was actually down 27% year-to-date. I think that if you have a lot of brand advertising on your platform, you tend to get more affected where performance-based advertising are probably better during sort of economic downturn. And also, we also see structural wallet share loss for Weibo. The other one is Trip.com. They have like more than 30% coming from international travel and they also are more positioned in the higher end. So, I guess, they are more affected as well. So, their year-to-date performance is negative 16%.

Black: Okay. So, amidst this backdrop where in the sector as a whole there have been these strong gains you still see investment opportunities or has anyone that's not already involved misses the boat now?

Tam: Well, I think, there are still opportunities in the sector. So, in my coverage, I think I'm more comfortable with Trip.com in the long run because international travel will basically resume anyway but may be just – probably just not this year or may be not early next year. And then, the structural story for Chinese going outbound to travel, to experience has not changed.

Black: Chelsey, thank you so much for your time. For Morningstar, I'm Holly Black.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Holly Black  is Senior Editor, Morningstar.co.uk


© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures