Alibaba and Tencent remain China’s top tech stocks – even as Beijing continues to increase regulatory pressure on its big internet companies, says Jackson Wong of Amber Hill Capital.
“At this point in time, I don’t see any other stocks that could challenge their positions in China,” Wong, Amber Hill’s director of asset management, 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 both own shares in the two companies.
His comments come as Chinese tech stocks have lagged other sectors so far this year in Hong Kong.
According to a CNBC analysis using data from Refinitiv Eikon, the top 10 constituents of the Hang Seng index did not contain a single tech stock at the end of the first quarter.
What is pulling tech stocks down?
A number of factors have contributed to the comparatively poorer performance of the technology sector, which accounts for more than 42% of the Hong Kong benchmark index.
Part of the reason is that bond yields are rising – and that hurts growth stocks like techs by reducing the relative value of future earnings.
Another problem is The delisting of threats posed by US tech stocks, also listed in the US, has increased this year amid fears that new US law could stop trading in securities that violate the rules of the Securities and Markets Exchange Commission violated.
Looking ahead, Wong acknowledged that political headwinds and potential regulatory requirements could “really hurt” the profit outlook for the two internet giants that dominate China’s tech space.
However, he expects “some kind of compromise” to be reached at some regulatory level.
“Going forward, their valuations may not be 50 or 60 times profit. Even so … they are trading at 30 times profit and are in a very good position in China,” said Wong.
It referred to the price-to-earnings ratio (P / E) – a measure of a company’s share price relative to earnings. A high P / E ratio could indicate an expensive stock price versus earnings.
Alibaba’s Hong Kong-listed stock had a P / E of 26.34, while Tencent’s P / E was 33.36, according to Refinitiv Eikon.
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 Teslas is above 1,000.
Meanwhile, Apple and Facebook share similar reviews with the Chinese tech giants. The P / E ratios for the two companies were 33.25 and 29.61, respectively.