Overseas financial institutions move to buy more tech shares in vote of confidence for Chinese online sector
Published: Aug 13, 2021 04:39 PM
Photo: VCG

Photo: VCG

Overseas financial institutions have moved to increase holdings in Chinese internet giants' shares including that of Alibaba and Tencent in July, a move which analysts said reflected overseas investors' confidence in China's online economic growth as well as their nod in those companies' investment value after their share price slumped in recent months amid a wave of government regulation.

Media reports have cited Chinese financial information portal as saying that a number of overseas assets management companies have increased holdings of Chinese internet giants' shares in July. For example, the China Consumer Fund under the US financial company Fidelity Investments, has increased its holdings of Tencent stocks by 3.22 percent in July. By the end of that month, the value of the fund's holdings of Tencent shares was worth $623 million, the data showed. 

Alibaba Photo:VCG

Alibaba Photo:VCG

Likewise, the fund's holdings of Alibaba shares also increased by 1.85 percent month-on-month to $382 million by the end of July. It also bought shares of other Chinese blue-chip stocks like Kweichow Moutai and Meituan during the month. 

Another fund underneath Fidelity, the China Focus Fund, also increased holdings of Alibaba shares by 2.39 percent and Tencent by 1.1 percent in July in terms of market values, data showed. 

Besides Fidelity funds, UK financial institution Baillie Gifford also bought in around 9.46 million shares of Meituan, with total value amounting to over HK$1.91 billion ($250million) on July 28, data released by the Hong Kong Exchanges and Clearing showed. 

The overseas financial institutions' investment in Chinese Internet companies came after the shares of those companies saw a sharp plunge amid new government regulation, which triggered a temporary retreat of overseas capital earlier. Tencent Music, for example, saw its share price slump by more than 60 percent over the past five months on US markets. The share price of Alibaba also slumped by about 7 percent on the US markets in the past three months. 

Chinese regulators recently have announced to bar Tencent from exclusive music copyright agreements, as well as imposing a of 500,000-yuan fine on the company for unfair acquisition practices. The regulators also handed out a record 18 billion-yuan fine on Alibaba in April after the company was found to have abused its dominant market position in an anti-monopoly probe.  

Kuang Yuqing, founder of Lens Company Research and a veteran financial commentator, was quoted as saying that overseas capital is withdrawing from China's primary market but is making more investments in the secondary market, after they saw that many overseas-listed Chinese shares have "dropped to generate a (big) value space" for investment.

Zhao Qingming, a Beijing-based veteran financial expert, also stressed that China's policies toward internet companies are now well understood, thus making investors believe that the negative factors are already released. 

"Although government regulations have acted as a blow to the internet firms for the time being, it is not bad news in the long run judging from international experience, as it will help standardize the industries," Zhao told the Global Times, adding that it's very logical for overseas companies to increase holdings of those companies' shares. 

The experts also noted that overseas financial companies' increasing investment reflected their confidence in China's internet sector boosted by China's rapid economic growth.

"Recent economic data has proved that China's economic growth is very likely to outpace the economic growth in the US and Europe, and the digital space, the most active part in Chinese economy, will likely outpace China's economic growth in general," Zhao said. 

On the other hand, the business rebound of many online companies, reflected in their half-year financial reports, has caught the attention of many overseas institutions. Lina Choi, Senior Vice President at Moody's Investors Service, said in a note sent to the Global Times that Baidu's financial results in the first half of 2021 have reflected "recovery in its online market business and strong growth in artificial intelligence cloud... Baidu's H1 2021 financial results support its credit quality." 

Kuang also noted the overseas financial companies' position building will take a couple of months, and the current buying of Chinese shares might be just a "start."