Chinese internet stocks will keep outperforming their US counterparts in coming months as regulatory challenges to US technology giants mount in Washington and Brussels, according to some investors.
Their reasoning includes expectations that weakening the US megacaps will help bolster the relative attractiveness of Chinese technology companies, which are continuing to invest in areas of growth. Meanwhile, the growing uncertainty about prospects for the US sector could send buyers to their cheaper Chinese peers still being championed by the government in Beijing.
“The structural trend for China tech remains intact,” said Edward Lim, chief investment officer at Covenant Capital in Singapore. The sector trades on lower valuations and with higher growth prospects than the US, and it faces less regulatory risk from its own authorities, he said.
The MSCI China Information Technology Index has risen 45% this year, versus a 32% gain in the Nasdaq Composite. It trades on 27 times 12-month forward earnings, compared with 32 times for its US counterpart. The gauge edged higher on Tuesday, extending its winning streak into a seventh day running even though the Hong Kong market — where many of its stocks are listed — was closed by a typhoon.
The prospect of the Republicans losing the Senate in next month’s US election has focused attention on a report from the antitrust panel of the Democrat-controlled House judiciary committee last week, which recommended curbing the powers of US technology giants including Amazon and Google. EU regulators are also reportedly eyeing the sector for tougher regulation.
The adversarial stance in the US and Europe contrasts markedly with the approach of Chinese authorities, who meet this month to draft their economic and social policies for the next five years. The Communist Party plenum is expected to roll out a fresh plan to nurture the