After years of breakneck growth that catapulted Chinese tech firms into stock market giants, a number of strategists are coming to terms with the new reality of a sector beset by slower expansion and lower earnings.
Morgan Stanley has lowered target prices for tech firms including Alibaba Group Holding Ltd and Tencent Holdings Ltd, while China International Capital Corp said it assumes zero valuation for some tech investments in 2022.
JPMorgan Chase & Co reduced its target prices across China tech, some by more than a half, after changing their valuation model.
The simmering changes in models and thinking are a reflection of the challenging environment facing the industry, as regulatory risks and Covid-19 disruptions make it increasingly difficult to determine fair value.
It’s a new normal that the firms themselves are embracing. After reporting the slowest pace of quarterly growth on record, Tencent acknowledged a “new industry paradigm” where reckless growth is no longer feasible.
“We are hearing a common theme from key players in the Chinese Internet sector of shifting to a more prudent strategy when it comes to investing in new growth areas and pulling back to focus closer to the core business,” said Ramiz Chelat, portfolio manager at Vontobel Asset Management.
“We are more constructive on companies that have already displayed investment discipline,” than those that are intending to, Chelat added.
