Chinese tech stocks face other risks on top of tighter regulation, says portfolio manager

Published Wed, Jul 14 20215:37 AM EDTUpdated Fri, Jul 30 202110:47 AM EDT

Shares of major Chinese technology companies have taken a beating, but one Asia-focused portfolio manager told CNBC she's not buying the dip — and it's not only because of the recent regulatory clampdown on the internet sector. Chinese regulators have in recent months stepped up scrutiny on some of the country's largest tech firms, including e-commerce giant Alibaba and ride-hailing app Didi . The companies now face fines and new operating rules as Beijing moves to rein in monopolistic practices as well as regulate the collection and use of data . "It's not only the combination of the regulation but it's also of where China is in the growth cycle that concerns us. So for that reason, we've stayed on the sidelines," said Mary Nicola, portfolio manager for global multi-asset at PineBridge Investments. Nicola said during CNBC Pro Talks with Tanvir Gill on Wednesday that China's stock market in general has been "very attractive" from the valuation point of view. But she's been concerned about regulation "for quite some time." Macroeconomic risks In addition to regulatory risks, the main concern that could affect the performance of Chinese stocks is what's happening in the economy, she added. Nicola noted that credit growth is slowing down in China and policymakers are making an effort to normalize policy. Those factors are contributing to an environment that could have "a very big impact" on Chinese stocks in the coming months, she explained. China's Shanghai composite index is lagging many of its regional peers. The benchmark has risen a modest 1.6% this year as of Wednesday's close, compared to the 21.1% gain in Taiwan's Taeix and the 13.6% increase in South Korea's Kospi . Investing in tech Despite staying away from Chinese internet stocks, Nicola said the broader technology space remains a focus for PineBridge Investments. "The key thing that we've been focused on with tech is more of what are corporates investing in," she said, citing software, cloud computing, internet of things and artificial intelligence as areas that businesses are focusing on. "We think there is potential for growth especially as the focus for a lot of companies is more on enhancing productivity, and we see that even more in a post-Covid world."