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Investors are reviewing their record holdings of mainland internet companies after Beijing proposed sweeping new antitrust rules for China’s tech industry.
Leading groups such as Tencent, Alibaba and Meituan-Dianping have attracted record investments during the Covid-19 pandemic, according to data from Copley Fund Research, which tracks the investment activities of more than 180 of the world’s largest funds.
But Louise Dudley, a portfolio manager at Federated Hermes, said the combination of new regulations and a move by the Trump administration to prohibit US investors from investing in companies with alleged ties to the Chinese military had increased the risk.
“It’s something we are definitely aware of, maybe it’s more of a risk now than it was a month ago,” he said.
The change of mind comes after Beijing unveiled a new draft of rules targeting online lending from non-bank groups that were partly to blame for ruining the $ 37 billion IPO of the technology company Ant Group. financial
The listing would have been the largest in the world and was suspended a few days before it began trading. The cancellation was also seen as political, after Jack Ma, the founder of Ant, publicly criticized Chinese regulators.
Meanwhile, the State Administration for Market Regulation, China’s competition watchdog, released a new draft of the rules last week designed to curb the power of tech groups. The move immediately affected the shares of China’s fastest-growing stocks such as Alibaba, Tencent and food delivery giant Meituan.
Wong Kok Hoi, chief investment officer at Singapore-based APS Asset Management, said his view of the sector had “changed dramatically,” adding: “I think the upward race in China’s tech sector has come to a halt.”
Despite the concerns, many investors said China’s tech sector had become too big to ignore given the growth rates companies were getting.
Brendan Ahern, chief investment officer at Krane Funds Advisors, a manager focused on exchange-traded funds for China, said it would be difficult to displace dominance from China’s largest tech companies. “Just because you have a choice does not make alternatives viable solutions,” he said.
One banker pointed to the example of Tencent, whose shares fell in 2018 following government proposals to curb online gaming, its core business. The person said that Tencent has recouped much of its losses, showing that “companies tend to be smarter when interacting with the regulator.”
The company has halved its losses since its dramatic liquidation in early November, but it is still down 5.5% since before the regulations were announced.
For now, the outlook was mixed, according to analysts. Investor support was “vulnerable to a reversal given the hopes of the vaccine and possible regulation,” said Steven Holden, director and founder of Copley Fund Research.
Bruce Pang, head of macro and strategic research at China Renaissance, a Chinese investment bank, said the problems companies face are short-term, but the new regulations raise “significant concerns” from investors. “For the leaders in e-commerce, there are some headwinds ahead,” he said.
Additional information Hudson Lockett in Hong Kong
