UBS: More optimistic about Chinese internet stocks in 2024, cautious about US tech giants.

According to the Zhongtong Finance APP, UBS strategist Andrew Garthwaite believes that Chinese internet stocks, which have been hit hard, are likely to perform well in 2024, while large US tech stocks will take a back seat - a stark contrast to this year's trend. The reason for this is the increase in profit expectations and the low valuation of Chinese tech stocks such as Alibaba (BABA.US). On the other hand, they emphasized that analysts have lowered profit expectations for Apple (AAPL.US) and Tesla (TSLA.US).

It is understood that the Hang Seng Tech Index has fallen due to concerns about the recovery of the Chinese economy, and Chinese tech stocks have been struggling to find momentum this year. Meanwhile, the Nasdaq 100 Index has risen for 8 consecutive days, with a gain of 40%.

Garthwaite added that despite efforts by companies to cut costs and boost earnings, the performance of Chinese tech stocks has been "exceptionally lagging". As can be seen from the chart below, the forward P/E ratio of the Nasdaq Golden Dragon China Index, which includes component stocks such as Alibaba, JD.com, and NetEase, is more than 30% lower than that of the Nasdaq 100 Index.

UBS stated that in other regions of Asia, leading semiconductor companies such as TSMC (TSM.US) and Samsung Electronics have lower stock prices, despite their technological advantages and the recovery of the memory chip market.

UBS strategists said that due to the unstable profit trend, they have become more cautious about the "Big Seven" tech companies that have been leading the rise in US stocks this year. They stated that the mature online advertising market may be another unfavorable factor for this group.

It is worth mentioning that in the tech sector, UBS prefers software companies because of their defensive nature and high recurring revenue sources.