Chinese tech stock sell-off: What money managers Vontobel, Amundi and Capital Group are doing with their cash

  • The 30-member Hang Seng Tech Index has lost US$636 billion in capitalisation after peaking on February 17
  • The broader Hong Kong market has suffered a US$1.44 trillion diminution in value over the same period

China’s crackdown on technology companies has sent jitters through markets, with investors scrambling to navigate what are essentially uncharted waters.

While Beijing’s tightening measures are likely to disrupt revenue and cost structures, the continued volatility in China’s equity markets will keep risk premiums elevated. It’s clear no one knows where the bottom is even after the latest round of bashing – investors trying to buy the dip have been burned again as losses accelerate this week.

Since the Hang Seng Tech Index peaked on February 17, its 30 members have now lost a combined US$636 billion in capitalisation as the gauge hits all-time lows. The broader Hong Kong market has suffered a US$1.44 trillion diminution in value.

Here is what money managers have to say about navigating China’s regulatory minefield.

Vontobel: Government policies take precedence

Chinese regulators have become more assertive when it comes to clampdowns, said Brian Bandsma, a portfolio manager based in New York. The key to navigating, or profiting, from the volatility is to look at China’s shifting priorities.

“The key to helping investors navigate, and hopefully profit from, these changes is to understand the bigger picture and what the government is ultimately trying to achieve. So far, policy changes have been directed towards immediate impact, but over time another area that could help would be to focus more on conspicuous consumption by the rich.
“This would mean that businesses like baijiu, premium automobiles or European luxury goods should be considered incrementally riskier investments. Gaming should be less likely targeted, given the lingering effects of previous corruption crackdowns and Covid-19 related restrictions on travel.”

In the face of these changes, current and ongoing, the best approach is to assess what the government is trying to achieve and try to make investments in-line with the direction – “or at least avoid investing in those businesses that stand in the way of those objectives”, he added.

Zurich-based Vontobel manages about CHF134.6 billion (US$147 billion) in assets.

Amundi: Not all is lost

“In the short term, China’s regulatory tightening could be challenging and may include restrictions on companies listing overseas using the Variable Interest Entity structure,” fund managers including Vincent Mortier said in a report on August 10.

“Against this uncertain backdrop, we have become more cautious on Chinese equities compared to early 2021, due to tightening regulation and valuation concerns. Earnings and multiples could still be at risk, due to some potential new regulatory changes. High scrutiny and sector selection remain crucial in China to avoid possible new regulations or bubbles.

“In this respect, we are focusing on strategic sectors where government policy is a clear tailwind rather than a headwind. Clean energy and biotech are two examples.

“This short-term correction coupled with possible further weakness should prove healthy for the market in the medium term, and could be seen as an opportunity for investors looking for sustainable returns. We remain constructive on the Chinese equity market over the long term,” they added.

Paris-based Amundi oversees more than €1 trillion (US$1.2 trillion) in assets.

Capital Group: Still a “classic stock picker’s market”

In some areas such as cybersecurity and digital commerce, current rule making and stricter enforcement parallel, to a degree, the efforts made by the US and Europe to regulate the digital economy, portfolio managers Victor Kohn and Noriko Honda Chen said in a report recently.

“Beijing is saying it wants greater control, but that does not necessarily mean the government wants to punish any company that makes too much money, or to sharply curtail the profitability of some of the country’s most successful companies.


Crackdown on private tutoring leaves industry, students and parents drawing a blank

“No doubt, what happened in online education may extend to other industries, such as video gaming and streaming services, where there reportedly is pressure to enact more rules. Restrictions already exist to reduce the time students and young adults spend on online gaming and streaming.

“We anticipate more regulatory action, and there could be further guidelines in areas such as consumer finance, online gaming and mobile apps. We think the government is sensitive to market concerns even though the motives of party officials can be opaque.

“We are weighing potential opportunities to invest in unique companies with dominant market share positions, whose absolute valuations are much more palatable at current levels. It remains a classic stock picker’s market, with a growing number of high-quality companies and ongoing innovation, so we believe it’s important to invest on a company-by-company basis to gain an appropriate comfort level,” they added.

Los Angeles-based Capital Group manages more than US$2.6 trillion in assets.

Author: Cheryl Heng, Bobo Chan, SCMP

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