The drop in valuations also offers a rare opportunity to buy some fast-growing internet companies at highly attractive prices.
China’s tech giants have swept $ 823 billion combined since their February highs, and Beijing’s expanding crackdown on the sector fuels investors ’concern that the selloff is far from over.
Authorities on Tuesday launched a sports warning to the nation’s largest companies, promising to tighten oversight of data security and overseas listings just days after Didi Global Inc.’s controversial decision. to become public in the United States. names including Tencent Holdings Ltd., Alibaba Group Holding Ltd., JD.Com Inc., Baidu Inc. and Meituan.
“Sales will continue in the third quarter,” said Paul Pong, general manager of Pegasus Fund Managers Ltd. He says it sold two-thirds of its technology shares, including in Tencent and Alibaba, in May. “Measures from the authorities will continue to come.”
The Hang Seng Tech Index, whose members include many of China’s largest technology companies, fell as much as 1.9% on Wednesday, poised for its sixth consecutive day of decline. Tencent and Meituan fell as much as 3.7%, among the biggest declines in the Hang Seng index. Alibaba fell 2.1%.
China’s general warning on Tuesday followed the opening of a security review by the nation’s internet regulator last week in Didi and an app store request to remove it. The move shocked investors and industry leaders and hammered Hong Kong’s shares of companies like Tencent – one of Didi’s largest financiers.
Investors worry that the latest security-based probes have opened a new front in President Xi Jinping’s broader campaign against China’s internet giants that began in November with the collapse of the mega IPO of Ant Group Co. Over the weekend, China moved against two other companies that were also listed in New York – Full Truck Alliance Co. and Kanzhun Ltd.
Investors are likely to take “a sell first, talk after approach” to limit the political risks in their portfolio, said Justin Tang, head of Asian research at United First Partners in Singapore. Stock prices will likely be driven by fluctuations in sentiment at least in opposition to the company’s fundamentals, Jian Shi Cortesi, fund manager at Zurich-based GAM Investment Management, wrote in an email.
To be sure, ratings can start to look attractive. Tencent, Alibaba and Baidu Inc. – among the first Chinese technology companies to enter public markets and the largest, trading at an average of 22 times projected gains for the next 12 months. This compares with the 10-year average of 26 times, according to data compiled by Bloomberg.
“In case the market sentiment goes into an extreme pessimism and we see the Hang Seng Tech Index falling by 20% from there, it could be a rare opportunity to buy some fast growing Chinese internet companies at extremely attractive prices,” he said. said Jian Shi of GAM.
The Hang Seng Tech index is down 31% from its February high. Investors in mainland China, which made about a third of the turnover in Tencent shares this year, turned over net sellers of the shares in June.
“While the long-term future of Chinese technology remains, it will be a warning to investors soon,” Tang told United First.