Jackson Wong of Amber Hill Capital said that even if Beijing continues to increase regulatory pressure on large Internet companies, Alibaba and Tencent are still China’s largest technology stocks.
Huang Yong, director of asset management at Amber Hill, told CNBC’s “Asian Street Sign” on Thursday: “Currently, there are no other stocks that can challenge their position in China.”
He said that Alibaba and Tencent “remain the benchmarks of Chinese technology stocks.”
His remarks come at a time when Chinese technology stocks in Hong Kong have lagged behind other sectors so far this year.
CNBC’s analysis using data from Refinitiv Eikon showed that at the end of the first quarter, the top 10 constituent stocks of the Hang Seng Index did not include a technology stock.
What drags down technology stocks?
A series of factors have contributed to the relatively poor performance of technology stocks, which account for more than 42% of the Hong Kong benchmark index.
One reason is that bond yields are rising, which hurts growth stocks like technology stocks because they reduce the relative value of future returns.
Another concern is that the threat of U.S. technology stocks that are also listed in the U.S. this year has been delisted due to concerns that the new U.S. law may prevent securities transactions that may violate the rules of the Securities and Exchange Commission.
Challenges for the future
Looking ahead, Wong admitted that political unfavorable factors and potential regulatory requirements may “really damage” the profit prospects of the two Internet giants that dominate the Chinese technology sector.
However, he hopes to finally reach “some kind of compromise” in terms of regulation.
Wong said: “Looking forward, their valuation may not be 50 or 60 times the P/E ratio. But…their P/E ratio is about 30 times the P/E ratio, and their position in China is very good.”
He refers to the price-to-earnings ratio (P/E), which is a measure of a company’s stock price relative to its earnings. A higher price-to-earnings ratio may indicate that the stock price is expensive compared to its earnings.
According to data from Refinitiv Eikon, Alibaba’s Hong Kong-listed stocks have a P/E ratio of 26.34, while Tencent’s P/E ratio is 33.36.
In contrast, some US technology stocks have higher valuations. Amazon and Netflix have P/E ratios of 75.71 and 91.6, respectively, while Tesla’s P/E ratio is more than 1,000.
At the same time, Apple and Facebook have similar valuations to Chinese technology giants. The P/E ratios of the two companies are 33.25 and 29.61 respectively.