Alibaba and Tencent remain China’s top tech stocks, even as Beijing continues to increase regulatory pressure on its large internet companies, says Jackson Wong of Amber Hill Capital.
“At this point, I don’t see any other action 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 “remain the benchmark” among China’s tech stocks, he said. Wong’s family and Amber Hill own shares in the two companies.
His comments come as Chinese tech stocks in Hong Kong lagged other sectors so far this year.
The top 10 components of the Hang Seng Index did not include a single technology stock at the end of the first quarter, according to a CNBC analysis that used data from Refinitiv Eikon.
What’s Driving Tech Stocks?
A variety of factors have contributed to the comparatively poorer performance of the tech sector, which accounts for more than 42% of Hong Kong’s benchmark.
One reason is that bond yields are rising, and that hurts growth stocks like tech stocks because they lower the relative value of future earnings.
Another concern is the exclusion of threats from US Chinese tech stocks that are also traded in the US They have taken a beating this year amid fears that a new US law could stop the negotiation of securities that violate the rules of the Securities and Exchange Commission.
Challenges ahead
Looking ahead, Wong acknowledged that the political headwinds and potential regulatory rules ahead could “really hurt” the earnings prospects for the two internet giants that dominate China’s tech space.
However, he hopes that “some kind of compromise” will eventually be reached on the regulatory front.
“In the future, their valuations might not be, you know, 50 or 60 times earnings. Still … they’re trading around 30 times earnings and they’re in a very good position in China,” Wong said.
He was referring to the price-earnings ratio (P / E), a measure of a company’s stock price relative to its earnings. A high P / E ratio could indicate an expensive share price compared to your earnings.
Alibaba shares listed in Hong Kong had a P / E ratio of 26.34, while Tencent’s P / E ratio was 33.36, according to data from Refinitiv Eikon.
By comparison, some US tech stocks have much higher valuations. Amazon and Netflix have P / E ratios of 75.71 and 91.6, respectively, while Tesla’s is over 1,000.
Meanwhile, Apple and Facebook share similar valuations with the Chinese tech giants. The P / E ratios of the two companies were at 33.25 and 29.61, respectively.