Tencent and more: How one top Asia fund manager is navigating the China crackdown

Published Wed, Sep 8 20217:28 AM EDTUpdated Thu, Sep 9 20219:50 AM EDT

China's regulatory crackdown has wiped billions of dollars of value from the country's tech giants, but there are still returns to be found, according to Hugh Young, chairman of Aberdeen Standard Investments Asia. Since suspending the massive public offering of billionaire Jack Ma 's financial technology company Ant Group in November 2020, the Chinese government has unleashed a slew of anti-monopoly legislation and new rules aimed at fortifying data security and protection laws. The regulatory onslaught, combined with slowing growth, global supply chain issues and Covid-19 resurgence, has meant Asian markets have endured a rocky period in recent months. Speaking to CNBC Pro Talks on Wednesday, Young said there were still some large cap stocks that had pulled back sharply, but possessed promising enough long-term prospects that his firm had added to its holdings during the dip. In particular, he named Hong Kong-listed multinational conglomerate Tencent , which has seen its share price fall 7% year-to-date. "One never knows what the worst could be. At one extreme, you could have companies nationalized and disappear, that is the real worst that can happen in any market in the world," Young told CNBC's Mandy Drury. "I would say the Alibaba s of this world are still an absolutely vital part of China's makeup, so the government is not out to destroy them, they are out to control them, and to tax them. They are still a vital machine for the government to monitor its citizens." ASI is wary of investing in ride-sharing giant DiDi , Young revealed, given its potential place in the crosshairs of the authorities. DiDi shares bounced more than 7% on Wednesday but are down 31% since listing on the New York Stock Exchange at the end of June. He also highlighted that governments around the world are looking at measures to curb the dominance of wildly profitable tech companies, most recently in South Korea, where parliament took a step toward preventing Apple and Google from forcibly charging developers commission on in-app purchases. "There is the social divide to be considered, which China is clearly thinking of and using these companies to raise money, to regulate more, so that is in large part now reflected in the ratings, but of course you're not going to get the exceptional growth that we have had in previous years," Young said. He suggested that investors should expect lower valuations and growth in Chinese markets moving forward, claiming that "China's days of tremendous growth are over" amid a shift in economic emphasis toward social equality, starting with the attacks on internet companies. "Rather than just building tremendous infrastructure, manufacturing, and going gung-ho on the economy, there is far more emphasis on social justice — which is implemented maybe in a clunky fashion in China, but it is hard to argue with that principle of spreading wealth — which ultimately means that rewards out of stock markets are likely to be less than they have been historically," Young said. However, he argued that this was not necessarily a reason for investors to take flight. "Having seen China pull back sharply, earnings growth will still be coming through. I don't think companies are going to be seeing negative earnings growth as a result of what is going on, but they will certainly be seeing slower earnings growth," he added.