China Tech Crackdown Cycle Ending

China’s rapid-fire moves to curb anti-competitive practices by more than 30 technology firms have rattled investors, leaving them uncertain about the prospects of once-adored industry favorites. Shares of internet titans such as Alibaba and Tencent have fallen about 20% from their recent peaks, driven also by a global tech selloff.

What we can think about is whether we are in the start of this cycle, this regulatory pattern cycle, or we are closer to the end of the cycle, I have a view that we are closer to the end of the cycle.”

Hyomi Jie, Fidelity International Ltd, oversee $7.3 billion China Consumer Equity Funds, beating 96% of peers in the past year.

Alibaba is trading at around 20 times its 12-month earnings estimates, compared with its five-year average of 25 times. Tencent’s multiple has fallen back to its average since 2016 of around 31 times. That compares with 35 times for the Hang Seng Tech Index.

Tencent, Alibaba and Meituan have lost more than $400 billion combined in market value since mid-February.

Beyond the tech industry, the money manager has moved profits into cyclical stocks that are likely to benefit as the global economy recovers from the pandemic.

In particular, Jie has favored Macau casino operator Galaxy Entertainment Group Ltd. as she expects the former Portuguese territory to be the first port of call for Chinese travelers after the pandemic.

“When Chinese people start to want to travel again outside of China, Macau is the safest place for them to go,” she said. Structurally, “Macau is an attractive destination for many mass and premium-mass customers” and there is a very tight control on supply of tourism resources there, Jie said.

Consumer shares Kweichow Moutai Co. and China Mengniu Dairy Co. also feature in Jie’s top 10 holdings as part of her pursuit of investments related to consumers upgrading to more premium items.

While Moutai, China’s biggest domestically-listed company, has often been criticized for being too expensive — trading at 48 times forward 12-month earnings — she believes that it’s worth it. Taking advantage of the selloff in consumer staples, Jie added to her position in it earlier this year.

Reference

Bloomberg, 2021-06-04, “China Tech Crackdown Cycle Nearing an End, Top Investor Says”