1H26 Review: China Internet Sentiment Worsens, Token Pricing, Tencent vs BABA and China AI Value Chain

This report details the 1H26 deterioration in sentiment toward Chinese Internet ADRs and outlines a shift in investor preference toward the China AI Value Chain and hard-tech infrastructure. Tencent has emerged as the preferred large-cap pick over Alibaba amid evolving cloud and AI competition.

Key Takeaways

• 1.Investor sentiment for China Internet ADRs has significantly worsened in 1H26, marked by a 'buyers strike' and ongoing outflows.
• 2.Tencent is currently preferred over Alibaba (BABA) due to better-than-expected AI model performance and potential for WeChat-based distribution.
• 3.The China AI Value Chain (GSXACART) is seen as a more attractive structural investment than legacy internet names.

Table of Contents

• Basket Performance since 2025 (rebased to 100)
• Exhibit 12: The wide disparity in market performance is mostly explained by the level of earnings growth...
• Exhibit 13: ... and revisions to consensus growth expectations
• Chinese model pricing power rises as performance gap with US narrows
• Single Stock: Tencent > BABA for Top Pick?
• Chinese players have continued to gain market share through 2026
• Thematic Exposure? GS China AI Value Chain (GSXACART)
• More in Macro

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