On Wednesday, Portfolio Manager Lucy Liu said that the crackdown by the Chinese government on big technology companies will likely be on for quite a long time and that investors should not consider buying these stocks.
Chinese regulators have increased actions against tech companies in the country. Companies such as Tencent and Alibaba, have been faced with new rules aimed at putting a stop to monopolistic practices by these companies, as well as fines for cases where they’ve been found guilty of charges. These technology companies have witnessed astronomical growth which was largely due to the coronavirus pandemic which caused an increased demand for the products and services offered by these companies.
Lucy Lui made the statement that China’s crackdown actions would last a few years while speaking at a mid-year Asia investment outlook event. “This regulatory cycle is long-lasting compared to 2018”, she said. The 2018 crackdown “episode” lasted for about 6-12 months and according to Lucy Lui; Portfolio Manager for Global Emerging Markets Equities at asset management firm BlackRock, “we think it’s going to be a multi-year cycle”.
She also mentioned that these companies’ earnings are not only affected by the crackdowns and regulations; they are also affected by fierce competition. The new trends in e-commerce have pushed companies to make new investments in infrastructure which has a lower initial investment on return on investment. Because of this BlackRock has plans to “stay a little bit away from the large, dominant platforms for a little bit longer”, Lucy Liu added.
According to Lucy Liu, BlackRock has a preference for small and mid-sized Internet companies. She said that this is because they are less prone to regulatory risks and have more potential for growth. Although she did not mention any specific company while she spoke at the mid-year Asia investment outlook event, she mentioned that she has a soft spot for companies in fields such as live streaming and short video.
China is also carrying out crackdown actions against cryptocurrency operations in the country and has shut down Bitcoin mine farms in Sichuan province. As of yesterday, more than $300 billion had been wiped off from the total digital currency market since China’s recent crackdown that began on Friday.