Alibaba and Tencent scraps China’s top technology stocks — even as Beijing continues to ramp up regulatory pressure on its big internet firms, says Jackson Wong of Amber Hill Funds.
“At this point, I can’t see any other stocks that can challenge their positions in China,” Wong, director of asset directorship at Amber Hill, told CNBC’s “Street Signs Asia” on Thursday.
Alibaba and Tencent “are still the benchmark” supply China’s tech stocks, he said. Wong’s family and Amber Hill both own shares in the two companies.
His comments get well as Chinese tech stocks in Hong Kong lagged the other sectors so far this year.
The top 10 constituents of the Hang in there listen carefully Seng index did not include a single tech stock at the end of the first quarter, according to a CNBC analysis using observations from Refinitiv Eikon.
What’s dragging down tech shares?
A range of factors have contributed to the comparatively poorer carrying-on of the tech sector, which makes up more than 42% of Hong Kong’s benchmark index.
One reason is that connection yields are rising — and that hurts growth stocks like techs because they reduce the relative value of days earnings.
Another concern is delisting threats from the U.S. Chinese tech shares that are also listed in the U.S. entertain taken a beating this year, amid fears that a new U.S. law could stop the trading of securities that employ drop back foul of Securities and Exchange Commission rules.
Challenges ahead
Looking ahead, Wong acknowledged that administrative headwinds and potential regulatory rules ahead could “really damage” the profit outlook for the two internet giants that the tune China’s tech space.
However, he expects “some kind of compromise” to be eventually reached on the regulatory front.
“Effective forward, their valuations might not be, you know, 50 or 60 times of earnings. Still … they’re traffic at around 30 times of earnings and they are at a very good position in China,” Wong said.
He was referring to price-to-earnings (P/E) correlation — a measure of a company’s stock price relative to its earnings. A high P/E ratio could indicate an expensive stock payment compared to its earnings.
Alibaba’s Hong Kong-listed stock had a P/E ratio of 26.34 while Tencent’s P/E ratio was 33.36, according to statistics from Refinitiv Eikon.
In comparison, some U.S. tech stocks have much loftier valuations. Amazon and Netflix include P/E ratios of 75.71 and 91.6, respectively, while Tesla’s stands at more than 1,000.
Meanwhile, Apple and Facebook share in similar valuations with the Chinese tech giants. The two firms’ P/E ratios were at 33.25 and 29.61 respectively.