JEFFERIES Financial Group Inc. strategists turned bullish on Chinese stocks, saying they’re due for a rebound after getting hammered by a year of regulatory actions and a slowing economy.

After being underweight on Chinese equities for most of 2021, “the case for a mean reversion led bounce is building,” Jefferies strategists, including Desh Peramunetilleke, wrote in a Jan. 17 note. The U.S. brokerage is forecasting a 23 percent return for the MSCI China index this year with an 83 percent probability of a positive return.

With the call, Jefferies joins a growing chorus that includes Goldman Sachs Group Inc. and UBS Group AG touting opportunities in China stocks.

While regulatory risks linger, especially for the tech sector, a statement from China’s securities regulator vowing support for overseas listings helped ease investor concerns to some extent.

Jefferies sees an earnings growth of 7 percent for MSCI China in 2022, compared with the consensus estimate of 15 percent. The firm is positive on both offshore and onshore China stocks.

It saw the case for mean reversion as particularly strong for the internet sector, especially if regulatory policy announcements slow.

“Valuations on the internet sector are now attractive and downgrades may be peaking,” the strategists wrote, saying the sector is close to a bottom following a 50 percent drop since the 2021 peak.

“Large players should trade like normal consumer companies, making 20x-22x a reasonable valuation range, vs below 18x PE currently.” (SD-Agencies)