Sustainable industries in China, such as internet, information technology, consumer and service sectors, have attracted investor attention, according to Caroline Yu Maurer, head of Greater China Equities at BNP Paribas Investment Partners.
Maurer has been investing in internet companies such as Alibaba or Tencent for a long time, and both stocks are among her top ten holdings, despite their valuations becoming gradually expensive.
‘They are not excessively expensive,’ Maurer told Citywire Asia. ‘They are quite reasonably valued because both Tencent and Alibaba have the potential to monetise further through other platforms they already own.
‘For instance, Alibaba still has significant cloud business, which has not yet been monetised. Alibaba also has some associated holdings in the internet finance and logistics business.
‘Therefore, it still has potential apart from what they have on the core e-commerce part. Tencent is the same. With around 700 million users, the company has barely monetised much on its WeChat platforms.’
Maurer said these companies still have the potential to increase topline growth.
Despite some investors showing concern about Alibaba’s variable interest entities (VIE) structure, such as Aberdeen Asset Management Asia, Maurer said she is not particularly worried about it.
‘I wouldn’t be too worried about it because it has been there for so long and I don’t think the Chinese government is going to get rid of Alibaba’s operating rights in China.
‘The investment circle only debates on the practice of the VIE structure, but the company itself has proved it to be good buying opportunity.
‘At the end of the day, this sector is getting very big and Chinese government had to welcome all of these companies to operate in China.’
The Chinese government prevents foreign investors from buying shares in certain industries, including the internet. In the past, Chinese companies used VIEs so that foreign investors could be connected to the publicly-held parent through contracts rather than direct ownership.
However, the risk is that Chinese courts don't recognise the validity of these agreements.