Alibaba and Tencent remain the top stocks in China – even as Beijing continues to increase regulatory pressure on its large internet companies, says Jackson Wong of Amber Hill Capital.
“Right now, I don’t see any other action that can challenge their position in China,” Wong, director of asset management at Amber Hill, told CNBC’s “Street Signs Asia.”
Alibaba and Tencent “are still the benchmark” among Chinese technology stocks, he said. The Wong family and Amber Hill both own shares in the two companies.
His comments come as stocks of Chinese technology in Hong Kong have remained in other sectors until 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 Eikon Refinitive.
What pulls down technological actions?
A number of factors contributed to the relatively weak performance of the technology sector, which accounts for more than 42% of the Hong Kong benchmark.
One reason is that bond yields are rising – and hurting growth stocks, such as technology, as they reduce the relative value of future earnings.
Another concern is the elimination of threats from US Chinese technology stocks, which are also listed in the US, were beaten this year amid fears that a new US law could stop trading securities that do not comply with the rules of the Securities and Exchange Commission. scholarship.
Future challenges
Looking ahead, Wong acknowledged that future political winds and potential regulations could “really hurt” the profit prospects for the two Internet giants that dominate China’s technology space.
However, he expects a “sort of regulatory compromise” to be reached.
“In the future, their valuations may not be, you know, 50 or 60 times in earnings. However … they trade about 30 times in earnings and are in a very good position in China.” , said Wong.
It referred to the price-earnings ratio (P / E) – a measure of a company’s share price in relation to its earnings. A high P / E ratio could indicate an expensive share price compared to its earnings.
Alibaba’s Hong Kong listed shares have 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 valuations. Amazon and Netflix have a P / E ratio of 75.71 and 91.6, respectively, while Tesla stands at over 1,000.
Meanwhile, Apple and Facebook share similar ratings with Chinese tech giants. The P / E ratio of the two companies was 33.25 and 29.61, respectively.