Are technology firms the new ‘white horse’ stocks in China?

The months-long advance of China-listed technology stocks still has further to go, as the market redefines leading tech players into a new group of blue-chip value stocks, analysts and investors say.

Tech firms are the drivers of China’s future economic growth, and are set to make up a larger portion of the country’s biggest public companies in the next three to five years, said Richard Pan, head of global capital investment at China Asset Management, one of the mainland’s largest mutual funds.

Tech-related stocks led by start-ups listed on the Nasdaq-style board of ChiNext in Shenzhen have posted stunning returns over the past few months, prompting worries that investors may have overhyped the sector. The ChiNext Index has surged 47 per cent since a low in June 2019, making it the best-performing major gauge in the country over the period.

“The high valuations won’t intimidate me, if we have a long-term investment horizon,” said Pan in a recent interview. “We think some of the hi-tech companies can maintain sustainable earnings growth.”

Chinese authorities for the past few years have been pushing for greater state-led investment into fields critical to the country’s tech competitiveness, such as semiconductor manufacturing, said Pan, who manages over US$5 billion worth of capital for foreign clients including central banks and sovereign wealth funds.

Traditionally, foreign capital has favoured consumption stocks including Chinese distillers and home appliance makers. They are considered “white horses” or blue-chip stocks as they have a track record of stable earnings and healthy growth prospects. While overseas investors are likely to maintain their positions in these sectors, they are also likely to start increasing their allocation to tech stocks, Pan said.