Investors beware as Beijing tightens grip on China’s tech platform behemoths at the expense of profits, BCA Research warns

Name: Baidu unveils China's first metaverse platform ‘Xi Rang’
Uploaded: 2023-02-03T03:47:08.000Z
Duration: 4 min 36 s
Description: Baidu unveils China's first metaverse platform ‘Xi Rang’

Investors should consider trimming their holdings in Chinese platform stocks as the sector enters a new era of active government control, says BCA

Platform companies will be asked by the authorities to slash prices and to prioritise national interests, the Montreal-based research firm says

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Platform companies will be asked to slash the prices of their services and invest in new technologies to prioritise national interests, says BCA. Photo: Shutterstock

Jiaxing Li

Published: 11:47am, 3 Feb 2023

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.

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Baidu unveils China's first metaverse platform ‘Xi Rang’

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.