Economy

Investors believes Beijing ramps up the pressure- Alibaba and Tencent still China’s tech giant

Jackson Wong of Amber Hill Capital mentioned that Alibaba and Tencent are China’s topmost technology stocks. Ha said China continues to ramp regulatory pressure on its big internet firms.

Wong, director of asset management at Amber Hill said, “At this point, I can’t see any other stocks that can challenge their positions in China.”

He mentioned, Alibaba and Tencent “are still the benchmark” among China’s tech stock. However, he commented that Chinese tech stocks in Hong Kong logged on to other sectors till this year.

Why tech shares are going down?

Moreover, a range of factors has now contributed to the poor performance of the tech sector that almost makes up around 42% of Hong Kong’s benchmark index.

The prime reason is that bond yields are growing and this will hurt the growth stocks like tech because they reduce the relative value of the future earnings.

Notably, there is another concern which is delisting the threats from the U.S. Chinese tech shares which are listed in the U.S. law might stop the treading of securities that may fall foul of Securities and Exchange Commission rules.

Finally, China’s regulatory crackdown on the sector has even spooked investors. However, the business empire of Alibaba’s founder, Jack Ma has suffered due to a huge blow in the last year when China pulled the plug on Ant Group’s initial public offerings and also suspended what is considered to be the largest IPO in history. Well, Ma is the co-founder and controller of Ant Group. It is found that Alibaba is not the only internet titan which is being targeted.

Till now, Tencent now shares a rise of 8% in the first quarter of the year. On the other hand, Alibaba found its Hong-Kong listed shares dropping down by more than 5% in the same period. Well, both the firms are on the verge of giving a positive start in the second year. On Thursday, Tencent’s stock has soared 7.21% whereas Alibaba shares in Hong Kong has jumped by 2.55%. On the last trading day before the long holiday. On 7th April, the trading begins again.

Further Challenges

By taking a look ahead, Wong acknowledged the political headwinds as well as potential regulatory rules forward that could “really damage” the profit outlook for the two internet giants which dominate the China’s tech space.

Moreover, he expects that “some kind of compromises” might ultimately reach the regulatory front.

Wong also said, “Going forward, their valuations might not be, you know, 50 or 60 times of earnings. Still … they’re trading at around 30 times of earnings and they are at a very good position in China.”

Further, he was referring to the price-to-earning (P/E) ratio which is a measure of a company’s stock price relative to its earnings. Even a high P/E ratio will indicate an expensive stock price which is compared to its earnings.

It is founded that Alibaba’s Hong Kong-listed stock had a P/E ratio of 26.34 that Tencent’s P/E ratio which was 33.36 as per the data from Refinitive Eikon.

When compared with some of the U.S. tech stocks it is loftier valuation. Netflix and Amazon have P/F ratios of 91.6 and 75.71 respectively in which Tesla’s stands more than 1,000.

In the meantime, Facebook and Apple share similarities with the big Chinese tech companies. The two firm’s P/E ratios at around 29.61 and 33.25 respectively.

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