Investors should consider trimming their holdings in Chinese technology platform stocks as the sector enters a new era of active government control , putting shareholders’ interests at risk, according to BCA Research. Platform companies will be asked by authorities to slash the prices of their services and invest in new technologies to prioritise national interests, the Montreal-based research firm said in a report on February 1. That will come at the expense of profitability, it added. Chinese authorities recently acquired a golden share in Alibaba Group’s key subsidiary and are discussing the same for Tencent Holdings, soon after declaring an end to a year-long regulatory clampdown. They have acquired similar shares in units of Weibo, Kuaishou and ByteDance, according to BCA Research. “In an era of technological competition with the US, Beijing will be more inclined than ever to control the business strategy and operations of platform companies,” strategist Arthur Budhaghyan said. “These platform companies might be used to achieve their geopolitical objectives”, undermining profitability, he added. The firm recommends reducing the allocation to the MSCI China Investable Index to underweight from neutral within global and emerging-market portfolios, sooner rather than later. The 940-member index is a composite of onshore and offshore-listed stocks dominated by platform companies with a 46 per cent weighting and banks with 16 per cent. The Hang Seng Red Chip Index, which tracks 25 state-owned enterprises including China Life Insurance, China Mobile and China Unicom, has languished since 2010, with its average price-earnings multiple shrinking below 10 times from 20 times. State-owned banks also cheapened, narrowing to 4 times from more than 30. “Chinese banks have been an ultimate value trap,” Budaghyan said. “A large chunk of the past 14 years’ worth of stimulus has been financed by banks, rather than the central government. This is happening again today.” China’s internet companies were some of the best performers during the recent market rally. The Hang Seng Tech Index has surged 68 per cent from an October low, outpacing the 50 per cent rebound in the benchmark Hang Seng Index. Its biggest members including Alibaba Group, Tencent and JD.com have appreciated HK$2.89 trillion (US$361 billion). Alibaba is the owner of the South China Morning Post and owns about a third of Ant Group but does not exercise board control over the fintech company, according to its exchange filings. Beijing expects the platform economy to help with development, create jobs and participate in global competition, and Ant Group understands that mission, its chairman and CEO Eric Jing said in an interview with state-run newspaper Zhejiang Daily last week. BCA Research noted that Beijing’s common prosperity policy agenda implies that the share of employee compensation in national income will continue rising and the share of corporate profits will dwindle. This dynamic will be even more pronounced going forward. “After having suffered a great deal from the government clampdown of the past two years, neither management nor shareholders of these companies will dare disagree with government priorities and initiatives,” BCA added in its report.