Hedge fund manager Dan Niles says he’s tempted to buy Chinese tech stocks – here are 2 of his favorites

Published Fri, Jul 9 20211:03 AM EDT

Hedge fund manager Dan Niles does not own any Chinese technology stocks right now — but he said the recent plunge in prices due to a crackdown from China has made him "a little tempted" to buy again. "I have to admit, I was a little tempted today with some of the moves lower," Niles, founder and portfolio manager at Satori Fund, told CNBC's "Street Signs Asia" on Friday. "I want to see where the floor is, and right now, we don't know where it ends." Chinese tech stocks listed in Hong Kong and the U.S. plunged this week, after Chinese regulators launched an investigation into ride-hailing app Didi days after its public listing in the U.S . Authorities also said they were increasing oversight on Chinese listings in the U.S. , leading to a large sell-off. Niles said when it's time to go "bottom fishing," he'll be looking at two of his favorite Chinese tech stocks: Chinese search giant Baidu and e-commerce giant Alibaba . Baidu's U.S.-listed stock has plunged 18.66% year-to-date, while Jack Ma's Alibaba has dropped 14.13% stateside during the same period. For his part, Niles said his fund is "not in Chinese tech companies right now." "Baidu was one we liked after the Archegos meltdown ," Niles said, referring to the forced liquidation of positions held by Archegos Capital Management in late March that resulted in severe selling pressure on Chinese internet names like Baidu and Tencent . "They are in a lot of great areas such as electric vehicles, they're obviously in search," he said, explaining why Baidu was one of his favorite stocks. The hedge fund manager said he likes Alibaba too, though its numbers "probably need to come down some." "All these companies are investing very aggressively for growth, and so, the margins for a fair number of them probably still need to move lower," he added. Still, Niles said his view was made from a technical standpoint "where you go wow the stocks are down a ton on super high volume, everybody's getting rid of these things, and maybe I've discounted some of the risk." "The problem is — you thought that two times before and you've been wrong each time," Niles said, referring to the Archegos debacle in April, as well as the tech sell-off in November when Ant Group's much-anticipated IPO in Shanghai and Hong Kong was abruptly suspended amid regulatory concerns. "You really need the regulatory environment to back off so then these companies trade on fundamentals and not headlines coming out of China." Founder and portfolio manager, Satori Fund Dan Niles In the past year, Chinese regulators have tightened their grip on the country's tech titans, introducing a slew of regulations covering areas such as antitrust and data protection . "You really need the regulatory environment to back off so then these companies trade on fundamentals and not headlines coming out of China," Niles said. "Right now, valuations and stock prices are related to what we're seeing with the pressure the government's putting on it." "At some point, we are going to go ahead and try to buy some of them because at the end of the day, China still has a lot more people that can come online," he said. He said the current internet penetration in China now is about 65% to 70%. "There's no reason that over a period of time, that's not going to be up in the 90s like it is with most developed countries."