Omit Tencent risks – Asia Tech continues to be a purchase, These dollars Say …

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(Bloomberg) — Friday’s attack by President Donald Trump on WeChat may have pushed many investors to offload Asia’s technology shares. But for some, the selloff has presented a good buying opportunity.

Jian Shi Cortesi, a portfolio manager at GAM Investment Management in Zurich, bought some Chinese internet stocks on Friday and plans to further increase holdings if the stock prices pull back more.

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Forget Tencent Risks: Asia Tech Is Still a Buy, These Funds Say …

About Tencent
Tencent Holdings Ltd is a global multinational conglomerate holding company founded in 1998, whose subsidiaries specialise in various Internet-related services and products, entertainment, artificial intelligence and technology globally. Its twin-skyscrapers headquarters Tencent Seafront Towers (also known as Tencent Binhai Mansion) are based in Nanshan District, Shenzhen.
Tencent is the world’s largest video game company, one of the world’s most financially valuable companies, one of the world’s largest social media companies, and one of the world’s largest venture capital firms and investment corporations. Its services include social network, music, web portals, e-commerce, mobile games, internet services, payment systems, smartphones, and multiplayer online games. Offerings in China include the instant messengers Tencent QQ and WeChat, and one of the largest web portals, QQ.com. It also owns the majority of Global’s music services (Tencent Music Entertainment), with more than 700 million active users and 120 million paying subscribers.
The company surpassed the market value of US$500 billion in 2018, becoming the first Asian technology company to cross the valuation mark. It has since then emerged as one of Asia’s most valuable companies, and among the world’s top technology companies by market value. Tencent has been credited as one of the world’s most innovative companies by numerous media and firms. As of 2018, Tencent has the 5th highest global brand value.Tencent controls hundreds of subsidiaries and associates in numerous industries and areas, creating a broad portfolio of investments across a diverse range of businesses. It has stakes in over 600 companies, and recent focus on tech start-ups in Asia.

“The U.S. ban on Chinese internet companies will have little impact on the revenue and earnings of most listed Chinese internet companies,” Cortesi said in an interview. Her Asia Focus Equity Fund has a third of its exposure in internet stocks, and beat 93% of its peers in the past year. “It hurts sentiment, which could push the stock prices lower and create an opportunity to buy.”

Trump’s escalation of his confrontation with Beijing, banning U.S. residents from doing business with the TikTok and WeChat apps, wiped more than $60 billion off the four largest Asia technology firms’ valuations and highlighted the political risks faced by regional companies, particularly those in China.

Forget Tencent Risks: Asia Tech Is Still a Buy, These Funds Say …

But Asian tech bulls aren’t flinching.

“President Trump’s noise provides a buying opportunity,” said Gary Dugan, chief executive officer of the Global CIO Office in Singapore. “Valuations are low on international comparisons and many are globally extremely competitive.”

The value of the four largest stocks on the MSCI Asia Pacific Index, all of them tech firms, still lag their American peers. The group — Alibaba Group Holding, Tencent Holdings Ltd., Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. — trade at an average of 25 times estimated profit for the next year, versus the 34 times of the more familiar tech giants atop the SP 500 Index.

The valuation gap had been narrowing since June, when the Asia companies traded at the cheapest since 2015. JPMorgan Asset Management’s Oliver Cox, who manages the JPMorgan Pacific Technology Fund, says the U.S.-China tiff doesn’t change the long-term story. He believes Asia has been repeating many of the U.S. trends in a earlier stage of evolution.

That implies “a much faster growth rate, more promising outlook and therefore greater upside potential for Asia Pacific tech stocks compared with the more mature, slower-growth U.S. names,” he said. The four Asia tech titans gained an average 25% this year, lagging behind a 39% average gain in their U.S. peers.

“The gap could be closer,” Pruksa Iamthongthong, a senior investment director for Asian equities at Aberdeen Standard Investments, said of the valuation difference. “On a three-year trajectory we will see a clear pathway on how they want to monetize businesses that they have invested in a long time ago.”

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Still, U.S. capital markets remain by far the deepest, most diverse, and most attractive in the world, said Andy Wong, senior multi-asset investment manager at Pictet Asset Management, adding U.S. leadership in shareholder value, corporate governance, liquidity, and innovation warrant a higher multiple.

Yet a weakening U.S. dollar may also prompt foreign investors to look at foreign assets, and Asia tech presents good opportunities given structural growth drivers, according to Suresh Tantia, a senior investment strategist at Credit Suisse Group AG.

©2020 Bloomberg L.P.

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