In this photo from September 25, 2020, Alibaba Group founder Jack Ma attends the opening ceremony of the 3rd All-China Summit of Young Entrepreneurs in Fuzhou, Fujian Province. Alibaba is among the stocks of Chinese technology recently updated by JPMorgan analysts.

Liu Ming | China News Service via Getty Images

JPMorgan upgraded Chinese technology stocks due to risk reduction, just two months after calling the sector “unfit for investment”.

U.S. investment analysts have raised stock ratings of seven Chinese online firms, including Tencent, Alibaba, Meituan, NetEase and Pinduoduo, from “underweight” to “overweight”. This suggests that they believe that these stocks may exceed the average total return on stocks in analyst coverage over the next 6-12 months.

In a note released Monday, Chinese internet bank analyst Alex Yao and his team said “significant uncertainty should start to ease due to recent regulatory announcements” that came earlier than expected.

Digital entertainment, local services and e-commerce promotions will be “the first batch of the best,” the bank said.

“We believe that the main risks for the sector have decreased, especially in terms of regulatory risk, ADR delisting risk and geopolitical risk,” JPMorgan analysts said.

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Back in March, Yao and his team said they considered the sector “non-investment” for the next 6-12 months, and the call, later reported by Bloomberg, was erroneously published. Yao of JPMorgan did not immediately respond to a request from CNBC to comment on the allegations made in the Bloomberg report.

Even before the bank’s March call, Chinese online stocks had already been hit – hit by months of regulatory uncertainty and fears over supply chain disruptions due to Strict Covid’s strict policy on the mainland.

The Hang Seng Tech index, which tracks the largest technology stocks in Hong Kong, fell more than 27% this year as of Monday’s close.

Concerns about rising interest rates as large central banks seek to curb hot inflation are also looming over the broad technology sector around the world. Rising rates tend to make future earnings less attractive to growing companies.

The Nasdaq Composite Technology on Wall Street fell more than 25% as of Monday’s close.

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