Alibaba and Tencent remain China’s top technology stocks – even as Beijing continues to increase regulatory pressure on its big Internet companies, says Jackson Wong of Amber Hill Capital.
“At this point, I can’t see any other action that could challenge your positions in China,” Wong, director of asset management at Amber Hill, told CNBC’s “Street Signs Asia” on Thursday.
Alibaba and Tencent “are still the benchmark” among China’s technology stocks, he said. Wong’s family and Amber Hill own shares in the two companies.
His comments came at a time when China’s technology stocks in Hong Kong lagged behind other sectors this year.
The top 10 constituents of the Hang Seng index did not include a single technology stock at the end of the first quarter, according to a CNBC analysis using data from Refinitiv Eikon.
What is reducing technology shares?
A number of factors contributed to the comparatively worse performance of the technology sector, which represents more than 42% of the Hong Kong benchmark.
One reason is that bond yields are rising – and that hurts growing stocks, like technology stocks, because they reduce the relative value of future earnings.
Another concern is the threats to withdraw US and Chinese technology stocks, which are also listed in the U.S., which suffered a beating this year, amid fears that a new U.S. law could prevent trading in securities that violate the rules of the Securities and Exchange Commission.
Challenges ahead
Looking ahead, Wong acknowledged that headwinds and possible regulatory rules could “really hurt” the profit prospects for the two Internet giants that dominate China’s technological space.
However, he hopes that “some kind of compromise” will eventually be reached on the regulatory front.
“In the future, their valuations may not be, you know, 50 or 60 times the profits. Still … they are trading at about 30 times the profits and are in a very good position in China,” said Wong.
He was referring to the price / earnings ratio (P / E) – a measure of a company’s stock price in relation to its profits. A high P / E ratio can indicate an expensive share price compared to your earnings.
Hong Kong’s listed Alibaba shares had a P / E ratio of 26.34, while Tencent’s P / E ratio was 33.36, according to data from Refinitiv Eikon.
In comparison, some US technology stocks have much higher ratings. Amazon and Netflix have P / E rates of 75.71 and 91.6, respectively, while Tesla’s is over 1,000.
Meanwhile, Apple and Facebook share similar assessments with Chinese tech giants. The P / E ratios of the two companies were 33.25 and 29.61, respectively.