Alibaba and Tencent remain China’s main technology stocks, even as Beijing continues to increase regulatory pressure on its large Internet companies, says Jackson Wong of Amber Hill Capital.
“Right now, I can’t see any other action that could challenge their positions in China,” Wong, Amber Hill’s asset management director, told CNBC’s “Street Signs Asia” on Thursday.
Alibaba and Tencent “remain the benchmark” among China’s technology stocks, he said. Wong and Amber Hill’s family own shares in both companies.
His comments come when Chinese technology stocks in Hong Kong have lagged behind in other sectors so far this year.
The top ten components of the Hang Seng index do not include any technology stocks at the end of the first quarter, according to a CNBC analysis using data from Refinitiv Eikon.
What is dragging technological actions?
A number of factors have contributed to the comparatively lower performance of the technology sector, which accounts for more than 42% of Hong Kong’s benchmark index.
One reason is that bond yields are rising and this is hurting growth stocks, such as technologies, because they are reducing the relative value of future profits.
Another concern is the withdrawal of threats from US technology stocks that are also listed on the U.S. have been mistreated this year, amid fears that a new US law could stop the trading of securities that comply with Commission rules of Stocks and Stock Exchanges.
Challenges ahead
Looking to the future, Wong acknowledged that political headwinds and possible regulatory rules that could move forward could “really damage” the profit prospects of the two Internet giants that dominate China’s technology space.
However, he hopes that “some kind of commitment” will be reached in the regulatory plan.
“In the future, their valuations may not be, as you know, 50 or 60 times earnings. Still … they trade around 30 times earnings and are in a very good position in China.” , said Wong.
It referred to the price / profit ratio (P / E), a measure of the price of a company’s shares in relation to its profits. A high P / E index could indicate an expensive stock price compared to its revenue.
Alibaba’s Hong Kong listed shares had a P / E ratio of 26.34, while Tencent’s P / E ratio was 33.36, according to Refinitiv Eikon data.
In comparison, some US technology stocks have much higher valuations. Amazon and Netflix have P / E ratios of 75.71 and 91.6, respectively, while Tesla stands at more than 1,000.
Meanwhile, Apple and Facebook share similar ratings with Chinese technology giants. The P / E ratios of the two companies were 33.25 and 29.61 respectively.