China Markets

Chinese stocks are still attractive despite regulatory scrutiny, analysts say

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Key Points
  • Increasing scrutiny from Beijing has put Chinese tech firms under the spotlight in recent months.
  • Given the increased pressure, Chetan Seth, APAC equity strategist at Japanese bank Nomura, acknowledged that regulation is definitely a concern for investors in the near term. But he said these stocks still have attractive fundamentals.
  • Alex Wolf, head of investment strategy for Asia at JPMorgan Private Bank, said the risks will eventually decrease.
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SINGAPORE — Regulatory risks weighing on Chinese tech companies will definitely be a concern for investors in the near term, but analysts told CNBC that eventually it will taper off and those stocks will remain fundamentally attractive.

Increasing scrutiny from Beijing has put Chinese tech firms under the spotlight in recent months. Alibaba-affiliate Ant Group's heavily anticipated initial public offering — which was set to be the world's biggest — was abruptly suspended.

Chinese authorities have also released draft rules that aim to stop monopolistic practices by internet platforms. Those were viewed as targeting tech giants like Alibaba, Tencent and Baidu.

Given the increased pressure, Chetan Seth, APAC equity strategist at Japanese bank Nomura, acknowledged that regulation is definitely a concern for investors in the near term. But he said these stocks still have attractive fundamentals.

"Beyond that … I think investors will take the view that look, at the end of the day, these companies are still there. They could deliver easily 15%, 20% earnings growth rate in an … environment where you don't have many stocks which can give you those high sustainable earnings growth rates," he told CNBC's "Street Signs Asia" on Tuesday.

Seth added: "So, short term I would say there's a bit of an overhang on the sector, but I think medium term, the outlook from our perspective is still quite constructive."

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Alex Wolf, head of investment strategy for Asia at JPMorgan Private Bank, said the risks will eventually decrease.

"We don't think that the regulatory … risk will just persist," he told CNBC's "Squawk Box Asia" on Tuesday.

"We think that they're likely now trying to understand how to properly regulate the internet, e-commerce, broad tech industry. Once they resolve that, the risk should be lessened," Wolf added.

In the long term, investors can still hold those names, he said.