Buy the dip? Analyst names 3 Chinese tech stocks to buy

“The waves of prosperity that have transformed China’s domestic consumption over the past three decades and delivered long-term investors exceptional returns have not been without shorter-term volatility. The coming decade will be no different.”

It’s a quote that sums up the way one leading Chinese equities analysts is thinking about the China tech rout that has plagued markets for the majority of 2021.

The Chinese economy emerged from COVID-19 better than most, and there was a sense of euphoria in markets as 2021 began. The Hang Seng Tech Index, which is dominated by mega-cap Chinese tech companies, reached a record high of 10,945.22 in February. But since, intense concern about Beijing’s corporate regulatory agenda and an economic slow down has seen investors hit the sell button.

Buy when there’s blood

From its February peak to its August low, the Hang Seng Tech Index has shed almost 50%, with little reprieve as we enter September. However, many institutional investors have been taking advantage of the market rout and increasing their exposure to Chinese tech stocks.

Among them is Sunny Bangia, Portfolio Manager of the Antipodes Asia Fund. Antipodes is a leading Australia-headquartered investment firm with around US$6.5 billion in funds under management. The firm also has offices in the UK and the US.

Mr Bangia believes the regulatory crackdown in China has been broadly misunderstood by western investors.

“Despite how it might be perceived by western investors, I feel strongly that Beijing is not anti-private enterprise and leaders understand the nation’s economic growth is dependent on a vibrant private sector,” he told Asia Markets.

“High-profile internet businesses, such as those that have been materially de-rated recently, are an essential part of this, providing solutions to the everyday lives of consumers.

“Investors must ask themselves, are these policies unreasonable? Is it unusual for regulators globally to regulate lenders, protect consumers from anti-monopolistic behaviour or have concerns around data security?”

Chinese tech stocks to buy… For the long-term

Mr Bangia revealed 3 Chinese tech stocks his fund has been increasing exposure to – at a discount.

He believes they are robust businesses which will benefit from a “wave of premium consumption” that will transform China’s economy in the year ahead and see it become more akin to many of the major advanced economies in the world today.

“In the coming decade the Chinese premium consumer (those earning over US$82,000 per annum) is estimated to rise from around 6% of the population today, to 20% by 2030,” he said.

“To understand the significance of this third consumption wave it must be considered in a global context. Based on conservative modelling the GDP share of the premium consumer in China will balloon to US$8 trillion – this is the size of the United Kingdom and Germany combined in just one income cohort.

“These premium consumers, along with the continued rise of the emerging and middle classes will see the Chinese economy increasingly pivot from one reliant on manufacturing and exports, to being driven by consumption and services.”

Tencent (HKG: 0700)Meituan (HKG: 3690) and JD.com (HKG: 9618) are three companies Mr Bangia believes will be long-term beneficiaries of China’s domestic consumption explosion and they are the three stocks the experienced investor has been buying amid the 2021 China tech stock rout.

“We’ve used the recent sell-down to increase exposure to Chinese domestic businesses which pass our extensive regulatory stress testing, including large-cap tech names such as Tencent, Meituan and JD.com,” he said.

“While the emergence of risk factors should never be overlooked, they shouldn’t cause long-term investors to lose sight of the bigger picture. In the case of China it’s a third consumption wave that can’t be ignored.”

Related: Matthews Asia: Why China’s extraordinary total addressable market can’t be ignored

Do you think Tencent, Meituan and JD.com are the Chinese tech stocks to buy? Leave a comment below.

Chinese tech stocks to buy
Supplied: Antipodes Partners