Beijing’s rapid reopening has raised hopes that its battered economy could follow a similar pace of recovery — and Wall Street is excited about what it means for stocks. Since the turn of the year, a raft of Wall Street banks have turned increasingly bullish on the world’s second-largest economy and its stock market. One of the sectors that’s gotten investors most excited is tech. A growing number of positive analyst calls has reinforced optimism in the sector, with recent share price gains reflecting renewed interest. The Hang Seng Tech Index, which includes the 30 largest tech companies listed in Hong Kong, is up 7.35% since the beginning of December when Beijing began unwinding its Covid-19 measures. It follows a painful period for some of the biggest tech names in China on the back of a punitive regulatory crackdown that began in 2021. How is Wall Street playing the resurgence in Chinese tech? Alibaba has emerged as a top pick among several investment banks. Earlier this month, Goldman Sachs added Alibaba to its coveted conviction list. In a note on Jan. 9, analyst Ronald Keung said “the worst is behind us” for Alibaba and it now has the “largest room for valuation multiple repair” among the Chinese Internet mega-caps. Goldman gives the stock a price target of $138. It is currently trading around $120. Morgan Stanley too, has named Alibaba its “top pick” in the Chinese tech sector — for the first time in three years. “Alibaba – top pick in China’s Internet industry in 2023. We see multiple catalysts (reopening, cost optimization, easing regulatory environment, cloud reacceleration, and valuation) driving the most attractive risk-reward in the industry,” Morgan Stanley’s analysts, led by Gary Yu, wrote in a note this month. Yu added that Alibaba is well placed to benefit from a consumption recovery in China, while easing regulations could lead the stock to beat its peers. The stock is also trading at an “attractive valuation,” given its ability to generate “strong” cash flow and its “stable” share repurchase program. Morgan Stanley has a base case price target of $150 on Alibaba, and an upside of $200 per share in a bull case. Interest in Alibaba has also risen among institutional and other high-net-worth investors. Billionaire activist investor Ryan Cohen has acquired a stake in Alibaba worth hundreds of millions of dollars since the second half of 2022, according to reports. Cohen is reported to have told Alibaba executives that he thought the company could reach double-digit sales growth and nearly 20% free cashflow growth over the coming five years. Fund manager Brian Arcese is also a fan of Alibaba. “We have been invested for quite some time and the largest positions that we have in China are focused on the tech platforms,” Arcese, portfolio manager at Foord Asset Management, told CNBC on Jan. 16, More than 12% of the $368 million Ford Global Equity Fund managed by Arcese is allocated to three Chinese company stocks: Tencent, Alibaba, and JD.com. Alibaba is the fund’s second-largest holding. King Lip, chief strategist at Baker Avenue Asset Management, is also upbeat on Alibaba’s prospects. “Just 18 months ago, I would say institutional investors like ourselves wouldn’t have touched stocks like Alibaba with a 10-foot pole, but now, a lot of these situations like the government crackdown on Ant Group, a lot of these checkboxes are starting to get checked off. So, we think these names are much more investable than they were just a couple of months ago,” he told CNBC on Jan. 6. He said he would “not be surprised” to see Alibaba’s share price rise to $140 to $150 — a “significant amount of upside” from current levels. His firm, however, does not currently own shares in Alibaba. Instead, he said he prefers exposure to China via ETFs as a first step, before buying individual stocks with low multiples such as Alibaba. Luca Castoldi, senior portfolio manager at boutique private bank Reyl Intesa Sanpaolo, has also named Alibaba among his “top conviction calls.” “We like China. We have been long in the last few months because we have seen that they are a cheap market that’s under-owned by foreign investors. There is kind of clear visibility that the country is reopening so we will have earnings per share growth. We like China relative to the rest of the world,” Castoldi told CNBC. — CNBC’s Michael Bloom contributed to reporting
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