Despite US-China trade tensions which led to Chinese stocks tumbling in May, the sector remains a good investment option, according to investment banks UBS and Credit Suisse.
Why it matters: The internet sector in China is a structural growth story following heavy sell-offs in April, signaling continuing upside, investment bankers told CNBC on Tuesday.
- Chinese stocks, including Baidu, Alibaba, and Tencent, suffered as the US and China ratcheted up tariffs on each other’s goods. The stocks did rebound at the beginning of last month, but the recovery was modest.
“Actually, the internet stocks do have an overwhelmingly domestic focus. They are not really export-oriented… They’re absolutely focused on consumption plays, services plays within the domestic economy and those are the ones we want to focus on.”
— John Woods, Credit Suisse’s chief investment officer for Asia Pacific
Details: Woods and UBS Global Wealth Management’s head of the Asia Pacific Investment Office, Tan Min Lan, both pointed out that the domestic focus of internet stocks make them a more solid bet amid uncertainties brought by the current political and economic climate.
- Chinese internet companies, such as those producing software and offering services, continue on an upward trajectory due to rising consumption in the country. They are less exposed to trade war headwinds, making them a good bet compared with companies subject to export volatility.
Context: Chinese stocks have sagged since the trade war began in March. In the first few months of 2019, Chinese stocks and their US counterparts hit the ground running amid optimism that the US and China could reach a trade deal.
- Technology has emerged as a battleground in the trade conflict as the two economic superpowers seek to advance their core technology capabilities in areas like 5G, artificial intelligence (AI), and cloud computing.