Investors revalue Chinese technology giants in light of US bans

US China relations

Stock investor Zhu Haifeng halved his once-cherished holdings in Chinese technology giants Tencent and Alibaba after the US declared sanctions against several Chinese companies in the most recent escalation between the rival nations.

The move followed President Trump’s announcement of a sweeping ban on US trade with Tencent Holdings, the Chinese owner of messaging program WeChat, and ByteDance, which owns the video-sharing app TikTok, citing national security threats.

Tencent now only represents 10 percent of his portfolio, having accounted for 40% in the peak of his purchases at the company that began some five decades back. E-commerce giant Alibaba Group Holding now represents 5 percent of his holdings.

Now, I can only think of Southeast Asian versions,” said Zhu, who has several million yuan from overseas-listed Chinese businesses.

Like other investors, he worries that Washington’s move to limit mainland technology firms could curb their growth potential.

That concern drove shares of Tencent and Alibaba down 5% each on Friday, but they were still up approximately 39% and 17% respectively this year following Friday’s losses.

Under Trump’s executive order, any transaction related to WeChat and TikTok will be banned from America.

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The Trump government last week also announced the expansion of the”Clean Network” initiative that aims to stop various Chinese programs and telecom companies from accessing sensitive information on US citizens and companies, targeting companies like Tencent, Alibaba and Huawei Technologies.

The most recent blow comes as the connection between the two powerhouses has nosedived since the outbreak of the coronavirus pandemic.

But right now, I think the market is still trying to digest this information because of the political backdrop,” said Paul Sandhu, Asia Pacific head of multi-assets quant solutions at BNP Paribas Asset Management.

“There’s a lot of ambiguity concerning the so called ‘Clean Network’,” he said, forecasting more market volatility ahead.

DOWNSIDE RISKS

Brokerage CLSA said the drop in Tencent and Alibaba stocks represented a buying opportunity, anticipating the US ban to only have a little impact since the US contributes less than 3 percent to each firms overall earnings.

However, Morgan Stanley said there was”significantly amplified” downside risk to Chinese online gaming firms if the US ban expands to pay more companies, or prohibits investment in the United States by Chinese tech companies.

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“Globalisation is one of the key growth drivers for China internet stocks as user growth decelerates and competition intensifies in China,” Morgan Stanley wrote.

Tencent, which derives over a third of its revenues from gambling, has invested in several of overseas gaming studios like Riot Games and Supercell, and has also partnered with a number of Western gambling companies in China and Asia.

A finance manager based in Shanghai, who owns Tencent shares, also said the sanctions throw a shadow over share trading.

“If we see the US take actions against China from time to time, I think share price volatility in Chinese tech companies will continue,” he said on condition of anonymity.

He expected the future development of Tencent to be largely driven by national e-commerce, FinTech and viral short-video companies.

The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our content partners at Thomson Reuters. Reporting by Samuel Shen and Scott Murdoch. Editing by Vidya Ranganathan and Ana Nicolaci da Costa.

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