Investors revalue Chinese tech giants after U.S. ban

Stock investor Zhu Haifeng halved his once-cherished holdings in Chinese tech giants Tencent and Alibaba after the United States announced on Friday sanctions against some Chinese firms in the latest escalation between the world’s two top economies.

A logo of a Chinese tech firm Tencent, owner of a messaging app WeChat, is pictured in Beijing, China August 7, 2020.

The move followed U.S. President Donald Trump’s announcement of a sweeping ban on U.S. transactions with Tencent Holdings (0700.HK), the Chinese owner of messaging app WeChat, and Bytedance, which owns the video-sharing app TikTok, citing national security threats.

Tencent now only represents 10% of his portfolio, having accounted for 40% at the peak of his purchases in the company which began some five years ago. E-commerce giant Alibaba Group Holding (BABA.N) now represents 5% of his holdings.

“I was envisioning a global Tencent, a global Alibaba. Now, I can only think of Southeast Asian versions,” said Zhu, who has several million yuan in overseas-listed Chinese companies.

“The room for imagination evaporates. Valuation should be cut by one third.”

Like other investors, he worries that Washington’s move to restrict mainland technology companies could curb their growth potential.

That concern drove shares of Tencent and Alibaba down some 5% each on Friday, but they were still up roughly 39% and 17% respectively so far this year after Friday’s losses.

Under Trump’s executive order, any transaction related to WeChat and TikTok would be banned in the United States.

The Trump administration last week also announced the expansion of the “Clean Network” initiative which aims to prevent various Chinese apps and telecom firms from accessing sensitive information on American citizens and businesses, targeting firms like Tencent, Alibaba and Huawei [HWT.UL].

The latest blow comes as the relationship between the two powerhouses has nosedived since the outbreak of the coronavirus pandemic. Reuters