Buy the dip or avoid the risks? Investors disagree over Chinese tech stocks

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Recent volatile moves in U.S.-traded Chinese tech stocks amid regulatory crackdowns in China have resulted in divergent moves from institutional investors: some bailed out, and others doubled.

Hillhouse Capital Group, for example, has abandoned all of its stakes in Chinese ridesharing platform Didi Global Inc., gaming giant NetEase Inc., and tutoring leader New Oriental Education & Technology Group Inc. It has also reduced its stake. stake in low-cost Chinese retailer Miniso. , carrier ZTO Express Inc., electric car maker XPeng Motors, video-sharing website Bilibili, and e-commerce platform Pinduoduo Inc., according to documents filed with the State Securities and Exchange Commission on Monday. -United.

The sale came after the Chinese government introduced stricter rules that weakened internet business prospects and significantly changed the operations of the country’s online education companies. But not everyone has turned bearish on Chinese stocks.

Among those buying at the bottom of the wave was famed investor Charlie Munger, chairman of Daily Journal Corp. and vice chairman of Berkshire Hathaway, known for helping Warren Buffett make investment decisions. It strengthened its position in Alibaba by 83% in the third quarter, buying 136,740 shares. Hedge fund Bridgewater Associates increased its stake in Alibaba by 132% from the second quarter to $ 490,000. Goldman Sachs Group Inc. bought more shares of New Oriental and TAL Education Group, while Morgan Stanley bought 170,000 shares of Bilibili.

The opposing moves reflected different assessments of the outlook for Chinese tech stocks. The sector has been the subject of extensive regulatory repression. Alibaba was fine a record 18.2 billion yuan ($ 2.8 billion) in April for anti-competitive behavior, followed by other tech giants like Tencent, Meituan, and JD.com Inc., all of which were penalized for similar reasons.

China written revisions to regulations that could mean that any Chinese company with the personal information of a million or more users would have to apply for a government cybersecurity review before selling shares overseas. In July, Beijing prohibited After-school tutoring companies make money through compulsory curriculum education, winning shares in New Oriental and TAL.

The crackdown shook investors. In the third trimester, $ 781 billion has been erased from the market value of Chinese Internet companies.

But Chinese tech stocks rebounded as authorities appeared to slow the pace of regulation, pushing the Nasdaq Golden Dragon China index up 5% this month. The index, which measures the performance of 98 listed companies in the United States that do the majority of their business in China, is still down 25% this year, while the S&P 500 index is up 25%.

“The worst is probably behind us in terms of the intensity of regulation and the corresponding shocks in the market,” Goldman Sachs strategist Kinger Lau wrote in a statement. Remark. Goldman said it expects a better year in 2022 for Chinese stocks, with onshore stocks returning 16% and offshore stocks 13% over the next 12 months.

Meanwhile, there is growing optimism about Sino-U.S. Relations after the Mountain peak Monday between US President Joe Biden and Chinese President Xi Jinping.

At the end of September, Hillhouse held 2.81 million shares of Pinduoduo, one of its top 10 holdings, down nearly 60% from the end of the second quarter, according to the company’s file.

Overall, Chinese stocks traded in the US remain the primary investment for the Asia-focused private equity firm. Chinese anti-cancer drug maker BeiGene, listed on the Nasdaq, represents more than a quarter of Hillhouse’s portfolio. The company also increased its stakes in the third quarter in Chinese e-commerce platform JD.com Inc. by nearly 30% and in anti-cancer drug developer I-Mab Biopharma by 10%.

Singaporean public investor Temasek Holdings Pte. sold all of its stakes in Chinese search engine Baidu, TAL and New Oriental, and in online recruiting service provider Kanzhun Ltd. in the third quarter, according to its file released Monday with the SEC. Meanwhile, Temasek reduced its stake in Alibaba Group Holding and Didi Global while increasing its stake in Alibaba rival Pinduoduo, according to the filing.

In the third quarter, ARK Investment Management LLC, the technology fund manager led by Cathie Wood, exited shares in Alibaba and Chinese food delivery platform Meituan and reduced its stakes in Baidu, JD.com and Tencent Holdings Ltd., according to its regulatory documents.

Contact journalist Denise Jia ([email protected]) and editor Bob Simison ([email protected])

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