As China cracks down on its domestic internet giants, Morningstar said two Chinese tech stocks may be "relatively more sheltered" from Beijing's regulatory oversight. The investment firm named Chinese internet company Tencent and e-commerce heavyweight JD.com as two stocks that may be relatively shielded from the impact of the regulatory uncertainty in the short run. Tencent has a "fairly well-diversified earnings base," said Lorraine Tan, Morningstar's director of equity research in Asia. Citing the recent scrutiny on Tencent's gaming business , Tan said the company's other revenue streams —such as cloud computing and WeChat — will allow it to "deflect" some of the expected regulatory pressure. Some of the measures in terms of reducing ... monopolistic practices will actually favor some of the smaller e-commerce players — and JD.com is one of them... Morningstar Lorraine Tan "It'll have little nicks and grazes, but we think overall, it'll be ... relatively intact," she told CNBC's "Squawk Box Asia" on Tuesday. In the case of JD.com, the perception of being less dominant than industry leader Alibaba may allow JD to fly under the radar of Beijing's regulatory crackdown, the analyst said. In April, Chinese regulators slapped Alibaba with a massive $2.82 billion fine for alleged abuse of its market dominance. "We do think that some of the measures in terms of reducing ... monopolistic practices will actually favor some of the smaller e-commerce players — and JD.com is one of them that we think is relatively well-entrenched right now. And we think that they will benefit," Tan said. Regulatory uncertainty has in recent months been a major overhang on China's massive tech sector that enjoyed unfettered growth for years. The crackdown, aimed primarily at anti-monopolistic behavior, has weigh heavily on investor sentiment and wiped billions off tech stocks in August. As of its Monday close, the Hang Seng Tech index — which tracks the 30 largest technology firms listed in Hong Kong — has tumbled around 24% for the year. Neither Tencent nor JD.com have been spared by the market onslaught, with their Hong Kong-listed shares falling around 14% and 9% respectively in the same period.
As China cracks down on its domestic internet giants, Morningstar said two Chinese tech stocks may be "relatively more sheltered" from Beijing's regulatory oversight.