Despite high pressure, Alibaba & Tencent are still China’s norm techs

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According to Jackson Wong of Amber Hill Capital, he said to CNBC’s “Street Signs Asia” on Thursday that at this time, there can not be any other stocks that can influence their 2 company position in China. 

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Despite high pressure, Alibaba & Tencent are still China’s norm techs

Alibaba and Tencent remain the benchmark tech among China’s tech stocks, he said. Wong’s family and Amber Hill both own shares in the two companies. 

These comments are given when Chinese tech stocks in Hong Kong lagged the other sectors so far this year.

What’s dragging down tech shares?

There is a range of factors leading to the comparatively poorer performance of the tech sector, which take up more than 42% of Hong Kong’s benchmark index.

One reason is that bond yields are rising which damages growth stocks like techs because they decrease the relative value of future earnings.

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Another concern is delisting threats from the U.S. Chinese tech shares that are also listed in the U.S. have taken a beating this year, amid fears that a new U.S. law could stop the trading of securities that fall foul of Securities and Exchange Commission rules.

Finally, China’s regulatory crackdown on the sector has also spooked investors.

Alibaba also suffered a huge blow last year when China pulled the plug on Ant Group’s initial public offering and suspended what would have been the largest IPO in history. Ma is the co-founder and controller of Ant Group.

Alibaba seems not to be the only internet titan that is targeted by the government. It is reported in March that Tencent’s founder Pony Ma has a meeting with Chinese antitrust officials earlier last month.

However, Tencent shares rose up slightly about 8% in the first quarter of the year. Alibaba, on the other hand, saw its Hong Kong-listed shares drop more than 5% in the same period.

Both firms start with a positive sign in the second quarter. Tencent’s stock soared 7.21% while Alibaba shares in Hong Kong jumped 2.55% on Thursday — the last trading day before the long holiday. Trading starts again on April 7

Challenges ahead

Looking ahead, Wong said that political headwinds along with potential regulatory rules ahead were able to break the profit outlook for the two internet giants. However, it is expected to deal with some kind of compromise on the regulatory front.

Wong said that Going forward, their valuations might not be 50 or 60 times of earnings. Still ... they were trading at around 30 times of earnings and they were in a very good position in China.

Also, he was mentioning to the price to earning P/E ratio. A high ratio indicates an expensive stock price compared to its earnings.

Alibaba’s Hong Kong-listed stock had a P/E ratio of 26.34 while Tencent’s P/E ratio was 33.36, according to data from Refinitiv Eikon.

In comparison, some U.S. tech stocks have much loftier valuations. Amazon and Netflix have P/E ratios of 75.71 and 91.6, respectively, while Tesla’s stands at more than 1,000.

Meanwhile, Apple and Facebook share similar valuations with the Chinese tech giants. The two firms’ P/E ratios were at 33.25 and 29.61 respectively.