This will severely restrict growth at Ant and lower its valuation which was deemed as high as $300bn in the recently postponed IPO due to changing regulation of ‘fintech’ companies not currently under the same oversight as traditional banks in China. While last Thursday’s announcement of an official antitrust investigation of Alibaba had limited impact on Tencent, Baidu and JD.com, the market is changing its views of the wider Chinese technology sector in today’s trading.
While the Alibaba crackdown is a paradigm shift in China and will likely cause headwinds for Chinese technology stocks, we are cautious about extrapolating the events in China to the rising antitrust cases in the US and Europe against big US technology companies. Due to the differences in the political systems the playbook will not be the same and we do not think Western governments will be as aggressive. Therefore, the immediate implication is not that of US technology stocks, but emerging market equities overall as Alibaba, Tencent, Meituan, Naspers, and JD.com are 14% of the overall MSCI Emerging Markets Index (see overview of ETF holdings below). This is obviously a threat to our positive view on emerging market equities, which we have expressed in several analyses including this one from 23 November, because the Chinese technology sector is a key driver to emerging market outperformance in 2021.
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