Kate Lin: Welcome to Morningstar. The Chinese authorities have been signaling support for the economy, which in turn has given investors comfort that the worst for tech names may be over. It would be wise to remember however the risk of a slowing economy and the peaking of penetration rate in the ecommerce sector have not waned. Chelsey Tam, Senior Equity Analyst at Morningstar, is here to discuss how this will impact the already cheap valuations of ecommerce names in China like Alibaba (09988).
Hi, Chelsey. The correction in China tech has lasted for more than a year now. Have we reached the bottom and are there still some exciting things that we should like about this space?
Chelsey Tam: Well, yeah, the stock prices have been quite volatile. I think one of the reasons of the decline is because of the lockdown in Shanghai and many disruptions across supply chains and delivery in the whole country. But other than that, we also see some signs of regulatory ease. So, I think that going forward as lockdown eases and the government rollout stimulus in monetary policies and also fiscal policies, then we expect that the worst should be over.
Lin: Right. But from here on out, since lockdown is over, are there other signs that you see would be a risk or a further downside that investors should be alert on?
Tam: Well, I think there is a possibility that there is some sort of lockdown as we have seen. We see that like Beijing, Shanghai, they have tightened lockdown measures. So, these will be very important and really drive, I think, the short-term price fluctuation for these companies. I think, generally speaking, the macroeconomics related to the lockdowns and also just the really weak consumer sentiments even before this wave, that would be the main downside risk, I would say.
Lin: So, from your research so far, JD.com (09618) has been a top pick. Can you tell us more about the stock?
Tam: Yeah. So, I think JD is benefiting – it's kind of benefiting a little bit relatively to some peers in terms of lockdown, not so much compared to 2020, but I think it's still best-in-class in terms of logistics and delivery in the ecommerce space. So, that's why I think for more resilient reasons we prefer JD in the more near term. If we look out for like maybe a year or so, I think that in the longer term, Alibaba will see a strong earnings growth. So, that would be actually coming from a decline in earnings previously. So, that turnaround would be important to watch as well.
Lin: Thank you so much, Chelsey. For Morningstar, I'm Kate Lin.
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