Asia Tech Wire (June 11) -- HSBC said in a report that it is bullish on the gaming business in China's Internet sector, especially Tencent and NetEase.

HSBC Global Research said in a report that it is more optimistic about online gaming than advertising, e-commerce and local services in China's Internet industry.

In the gaming segment, the bank is bullish on Tencent (0700.HK) and NetEase (9999.HK).

Tencent's Dungeon & Fighter (DnF) Mobile has been the top grossing iOS game in China since its launch, and the summer gaming season may further expand its user base, according to the report.

The general cut in NetEase's earnings due to market disappointment with its PC games is largely over, with upcoming catalysts including Fantasy Westward Journey (FWJ), in the second half of the year, Naraka: Bladepoint Mobile in July/August, and Where Winds Meet in July.

In terms of advertising, HSBC believed Tencent is in a favorable position and could seize the opportunities presented by artificial intelligence.

Temu owner Pinduoduo has achieved resilient domestic profits despite intensifying competition, and strong overseas growth potential remains a good bet.

In addition, HSBC continued to be bullish on Meituan (3690.HK), saying the easing of competition in the local services sector may unlock margin upside.