Eight pivotal questions for China Internet in 2H20
Overall positive on listing and earnings catalysts despite geopolitical tension
We update our 2020 outlook following recent industry checks, surveys, news flow, and investor conversations. We see geopolitics and regulation concerns coming to the fore, however, it is not all negative for the stocks due to limited international exposure for some, and dual listing and Southbound Stock Connect for others. By sector, we remain positive on e-commerce and online media including gaming, where we see continued growth momentum post Covid-19, and negative on advertising due to high online penetration and macro.
Geopolitics and regulation taking center stage
In the near term, recent restrictions from the US and other countries on Chinese apps have limited impact on most of our coverage, but it could impact long term growth opportunities overseas. We believe investors are not paying enough attention to increasing competition in fintech domestically.
Fundamentals remain strong and valuation reasonable
Across the sector, we see multiple revenue growth drivers, room for margin expansion, and reasonable valuation vs. history, US Internet and the market. Specifically, we expect e-commerce growth to remain strong in 2H20 based on merchant checks, and see live streaming as a driver, which could benefit social and online media platforms more than traditional e-commerce. Separately, we see growth opportunities in food and groceries deliveries, in online media and in mobile gaming including international expansion, and longer term in cloud computing.