Alibaba and Tencent remain China’s leading technology stocks, even as Beijing continues to push pressure on major internet companies, said Jackson Wong of Amber Hill Capital.
“At this point, I can see no other stocks that can challenge their positions in China,” Wong, director of asset management at Amber Hill, 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 when Chinese technology stocks in Hong Kong lagged behind the other sectors so far.
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 using data from Refinitiv Eikon.
What pulls down technology stocks?
A variety of factors have contributed to the relatively poorer performance of the technology sector, which accounts for more than 42% of Hong Kong’s benchmark index.
One reason for this is that bond yields are rising – and that it is hurting growth stocks such as technologies because it reduces the relative value of future earnings.
Another concern is to remove the threats from U.S. Chinese technology stocks that are also listed in the United States have been hit this year, amid fears that a new U.S. law could halt securities trading that is wrong is in accordance with the rules of the Securities and Exchange Commission.
Challenges ahead
Looking ahead, Wong acknowledges that political headwinds and potential rules ahead could ‘really damage’ the profit prospects for the two internet giants that dominate China’s technological space.
However, he expects that some kind of compromise will eventually be reached at the regulatory level.
“From now on, their valuations may not be 50 or 60 times earnings. Still … they are trading at thirty times earnings and they have a very good position in China,” Wong said.
He refers to price-to-earnings ratio (P / E) – a measure of a company’s share price in relation to its earnings. A high P / E ratio can indicate an expensive share price compared to its earnings.
Alibaba’s listed Hong Kong share 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 U.S. technology stocks have much higher valuations. Amazon and Netflix have 75.71 and 91.6 P / E ratios, respectively, while Tesla stands at more than 1,000.
Meanwhile, Apple and Facebook share similar valuations with the Chinese technology giants. The two companies’ P / E ratios were at 33.25 and 29.61, respectively.