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HSBC to China Investors: ‘See Through' the Tech Crackdown and Focus on Fundamentals

WANG ZHAO | AFP via Getty Images
  • Investors need to "see through" the current crackdown and "get back" to fundamentals, according to HSBC Global Asset Management's Alexander Davey.
  • Regulatory fears over China's technology companies resurfaced in recent days after local authorities announced late Friday that ride-hailing giant Didi Chuxing was under investigation.
  • While there are clear concerns in the short run due to increased regulatory scrutiny, Davey said buying opportunities could come for companies with strong fundamentals if their stocks drop amid investor fears.

As Beijing continues to crack down on China's internet companies, there could be buying opportunities in the tech sector, according to HSBC Global Asset Management's Alexander Davey.

Investors need to "see through" the current crackdown and "get back down to … the fundamentals of the company," Davey, global capability head for active & quantitative equity at the firm, told CNBC's "Street Signs Asia" on Wednesday.

Regulatory fears over China's technology companies resurfaced in recent days after local authorities announced late Friday that ride-hailing giant Didi Chuxing was under investigation for allegedly collecting users' personal information illegally. As a result, the app was removed from China's app stores and will not be available for new downloads while the company was under review.

The announcement came just days after Didi's initial public offering in the U.S. On Tuesday, shares of Didi plunged more than 19% as U.S. markets returned to trading after a long holiday weekend.

While there are clear concerns in the short run due to increased regulatory scrutiny, Davey said buying opportunities could come for companies with strong fundamentals if their stocks drop amid investor fears.

"The main issue we'd look at is … valuation," he said. "Where do we see fair valuation for this? Where do we see a point where that valuation's clearly … been oversold and the confidence to be able to hold that, to an extent, through the noise?"

Shares of China's tech giants have been volatile so far this year.

The Hang Seng Tech index which tracks the largest technology stocks listed in Hong Kong — including Alibaba, Meituan and Tencent — is currently lower by more than 9% this year, after an earlier surge in February.

In comparison, the tech-heavy Nasdaq Composite on Wall Street continues to test new highs and has already risen nearly 14% so far this year.

Tech crackdown

Days after the Didi crackdown, Chinese authorities followed up with a cybersecurity review on three more tech firms.

Those developments were just the latest in Beijing's ongoing clampdown on its domestic internet giants as China turns its attention toward data protection, which is important in its growing digital economy.

Previous action was mostly focused on anti-monopoly and financial technology regulation, which led to the suspension of Ant Group's $34.5 billon listing and Alibaba's $2.8 billion antitrust fine — major developments that shook the confidence of investors.

To be sure, regulatory scrutiny on tech giants is not unique to China. Similar moves have also been made by authorities in Europe as well as the U.S.

— CNBC's Arjun Kharpal contributed to this report.

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