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These Chinese stocks can benefit if the metaverse takes off, JPMorgan says


Some parts of China have officially promoted metaverse development plans. Pictured here is a metaverse exhibition area at an annual services trade expo in Beijing on Sept. 1, 2022.

China News Service | China News Service | Getty Images

BEIJING — When it comes to futuristic concepts like the metaverse, JPMorgan analysts think they’ve found a strategy for selecting Chinese stock plays.

The metaverse is loosely defined as the next iteration of the internet, existing as a virtual world in which humans interact via three-dimensional avatars. Hype around the metaverse swept through the business industry about a year ago. But in the United States at least, it isn’t gaining the momentum that companies such as Facebook had hoped.

The social network giant even changed its name to Meta last year. However, its shares are down more than 50% this year — far worse than the Nasdaq’s roughly 24% decline.

China faces the same consumer adoption problems as the United States. But the Asian country’s metaverse development faces its own challenge of regulatory scrutiny, something the JPMorgan analysts pointed out in their Sept. 7 report. Cryptocurrencies, a major element of the metaverse outside China, are also banned within the country.

Nevertheless, the stock analysts said some Chinese internet companies can make money from particular industry trends driven by the metaverse’s development.

Top picks

Their top picks in the sector are Tencent, NetEase and Bilibili. And among non-internet names in Asia, companies like Agora, China Mobile and Sony made JPMorgan’s list of potential beneficiaries.

That’s based on the companies’ competitive edge in particular aspects of the metaverse, such as gaming and social networks.

“Development of mobile internet and AI in the past 5-10 years suggests that a company’s competitive advantage in one part of the tech ecosystem is often more important in determining long-term value creation to shareholders than which part of the ecosystem the company operates in,” analyst Daniel Chen and his team said in the report.

Here are two main ways that companies can make money as the metaverse develops, the analysts said.

Gaming and intellectual property

Digitalization of business and consumption

‘Obstacles to overcome’

But it remains unclear how practical such efforts will be from a business perspective.

Without naming the companies as stock picks, the JPMorgan analysts described a number of other metaverse projects underway in China, such as Baidu’s virtual XiRang world, and virtual reality development by Baidu-backed iQiyi, NetEase and Bilibili.

The analysts said virtual reality devices are currently too heavy to be used for long periods of time, and cloud computing capabilities and metaverse content remain limited.

“We think ‘perfect form’ of the metaverse could take decades to achieve,” the analysts said. “While we believe the [total addressable market] for the metaverse is enormous, we believe there are various technological obstacles to overcome.”

— CNBC’s Michael Bloom contributed to this report.



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