UBS Global Wealth Management’s APAC chief investment officer Min Lan Tan believes that tightening by regulators against Chinese internet giants will be limited and that the ongoing antitrust probe will not result in a break-up.
«Globally, regulations have actually intensified […] to rein in the dominance of big tech,» said UBS’s Min Lan Tan during a virtual roundtable yesterday.
Currently, major Chinese tech companies are being probed by Chinese authorities over claims of monopolistic practices with Alibaba being the most notable target after a dedicated task force for the firm was established.
«In our view, this is meant to meant to prevent market abuse […] and regulators will be careful not to stifle innovation.»
More Disruption
According to Tan, UBS believes that a clearer operating framework and curbs against predatory practices will bode well for the industry in terms of improved competition and sustainable growth. And the bank believes the path to achieving this will not require major disruption to tech giants.
«Significant changes in business models or breakup of companies, we think, is unlikely,» she said.
Right on Cue
As a result, the bank is bullish on stocks it calls ‘internet laggards', as part of a broader call for Chinese equities – one of its most preferred asset classes – with forecasts for 20-25 percent growth alongside manageable regulatory risks. In fact, Tan called the recent sell-off from regulatory fears «an opportunity to position for longer-term holdings».
And her timing was impeccable as reports of Jack Ma’s resurfacing emerged hours later after China’s most renowned entrepreneur disappeared for months from the public spotlight. Ma's appearance triggered a rally for tech firms with Alibaba’s Hong Kong-listed stock rising as much as 11 percent before closing, adding over $60 billion of market capitalization.
For the broader Chinese equity market in 2021, UBS expects returns of low to mid-teens with a preference in the short to medium-term for e-commerce, healthcare, consumer durables and services, renewable energy and Chinese banks.
Political Risks Under Biden
While monetary policy is expected to remain loose and Chinese growth is projected to outdo most major economies – 8.2 percent in 2021, according to UBS estimates – Tan underlined that geopolitical risk for the region remains.
Although she expects «a return to more mainstream American diplomacy under» President Joe Biden with less open hostility, more high-level engagement and the potential for an orderly U.S.-China decoupling, she believes that the new administration will maintain its foreign policy direction for the world’s second-largest economy.
«The base case is that great power rivalry will continue to define this bilateral relation and U.S. strategy of China containment still has very broad political and public support. A lot of the continuation of measures is something we should expect.»
