Bernstein’s focus on Chinese internet technology stocks echoes sentiments from the bleak period of the Covid-19 pandemic. In an April 14 report, Bernstein’s China internet analyst Robin Zhu and his team remarked, “Despite legitimate concerns surrounding geopolitics and trade challenges, we believe the principle of ‘fade sentiment extremes’ remains relevant.” They highlighted that key conditions indicative of previous downturns in the Chinese internet sector are resurfacing, as valuation multiples have retracted to their lowest points observed between 2021 and 2023.
Investor sentiment has been adversely impacted by stringent government regulations affecting Chinese internet firms and the severe lockdown in Shanghai during 2022. However, the recent surge in stimulus announcements from Beijing and indications of greater support for the private sector—especially with the breakthrough of artificial intelligence from DeepSeek—have significantly lifted market spirits. Notably, the Hang Seng Index in Hong Kong ended a four-year losing streak in 2024, entering 2025 with renewed vigor. The Bernstein analysts commented, “When we look at global markets, the pace of regulatory changes in the U.S. evokes memories of China in 2021,” suggesting a newfound clarity in China’s current policy trajectory.
Among the sectors analyzed by Bernstein, video gaming appears to be relatively insulated from external trade and macroeconomic pressures, while digital advertising may actually benefit as merchants adapt to a more domestic sales focus. The report underscored these prospects for Tencent, a dominant player in social media and gaming.
Over the past fortnight, escalating tensions in U.S.-China trade relations have created uncertainty about the future of significant Chinese companies listed on U.S. exchanges. As of Thursday’s close, the Hang Seng Index saw nearly 7% growth this year, though it experienced a dip from its earlier gains. Tencent, recognized as the largest company listed in Hong Kong by market capitalization, remains Bernstein’s prime recommendation within the China internet landscape. The tech giant trades at 13.5 times its projected earnings for 2026, a figure not far from the recent low before expectations of its potential in generative AI sparked buying interest.
Bernstein has assigned an overweight rating to Tencent, setting a price target of 640 Hong Kong dollars, which indicates an expected upside of nearly 40% from its latest closing price. The firm also rates NetEase, a prominent Chinese gaming entity, as overweight with a targeted price of $125, reflecting an anticipated 27% increase. Bernstein’s analysis reveals that China granted approvals for 362 new video games in the first quarter, nearly reaching pre-pandemic levels, following a previous suspension aimed at regulating children’s gaming times.
Furthermore, in recent quarters, major Chinese enterprises have witnessed a minimum of 10% year-over-year growth in digital advertising revenues. Analysts at Bernstein anticipate that Tencent is particularly well-positioned, as domestic merchants may need to pivot in response to elevated U.S. tariffs. “Feedback from advertisers has suggested that advancements in AI and advertising technology are yielding notable benefits in ad ROI across Tencent’s platforms,” they noted, referencing the company’s Miaosi ad creation platform and the increased advertisement presence in short video content on its widely used WeChat app.
In support of local exporters, the Chinese government aims to assist businesses in redirecting products that would have been sent to the U.S. to the domestic market. Last week, China reported a 5.4% growth in gross domestic product for the first quarter, surpassing expectations. However, economists have begun to lower their projections, with UBS now forecasting a rate of just 3.4% for the year, compared to China’s official goal of approximately 5%.
The Bernstein analysts acknowledged the risks presented by U.S.-China trade issues but asserted that the anticipated slowdown—between 100 and 200 basis points—does not suggest an economic disaster. They noted that Meituan, the prominent food-delivery service, continues to give robust forward guidance, predicting mid-20% growth in gross transaction value, which exceeds fourth-quarter levels, despite slightly lower revenue growth projections. Bernstein holds an overweight rating for Meituan, with a price target set at 200 HKD, suggesting a potential upside of 46.5% from the previous close.
Additionally, Bernstein has assigned overweight ratings to Alibaba and JD.com, both of which have listings in the U.S. and Hong Kong. However, their only China internet stock recommendation that lacks a Hong Kong listing is PDD, the parent company of Temu.
Over the past few years, numerous Chinese firms listed in the U.S. have started offering shares in Hong Kong amid growing apprehensions regarding potential mandatory delistings from American exchanges. After the White House initiated a review of U.S. investments in Chinese firms in late February, concerns have resurfaced. When questioned about potential delistings on April 9, U.S. Treasury Secretary Scott Bessent remarked, “Everything’s on the table.”
The Bernstein analysts observed a recent trend in investor preferences, favoring Hong Kong stocks that also have access to mainland China via the “Southbound” stock connect, while showing reluctance toward U.S.-listed Chinese companies facing challenges in securing Hong Kong listings. They believe PDD may already be seeking strategies to alleviate the repercussions of impending U.S. constraints. — Finance Newso’s Michael Bloom contributed to this report.
