Quotes: Investors' views on battered China tech sector after Didi probe

DiDi Global

08/07/2021 10:11

(Adds more quotes)
    SHANGHAI, July 8 (Reuters) - Chinese tech firms tumbled on
Thursday, the worst day for Hong Kong's tech index in four
months, as investors grew nervous about the widening ambit of a
crackdown on the sector.    
    Didi Global Inc  DIDI.N  shares are down by nearly a quarter
this week after China ordered the app removed from stores, while
 the Cyberspace Administration of China (CAC) has launched
security reviews on Didi and three other internet companies.
 urn:newsml:reuters.com:*:nL3N2OJ2U0
    Below are some comments from investors and analysts on the
outlook for China's tech sector: 
    
    DAVE WANG, PORTFOLIO MANAGER, NUVEST CAPITAL:
    "There's a lot of fear right now. It's a
sell-first-and-ask-questions-later approach. 
    "End of era for China tech? I think that's overblown.
Sentiments come and go. We probably need a couple of good
earnings seasons ...to show the impact, if any, on earnings.
    "That is probably one or two quarters down the line,
assuming we are at the end of the scrutiny."       
     
    MAX LUO, PORTFOLIO MANAGER, UBS ASSET MANAGEMENT CO: 
    "The market needs to revalue relevant sectors. Under
previous years' of barbarian growth, some companies could grow
50% a year. Now, (the) growth rate could come down to 30% under
tighter regulations.
    "Every (tech) company needs to be compliant on data
security, whether you're an internet company, or a new energy
vehicle company, because you collect data. 
    "If a company is not under probe now, that doesn't mean it
will not be investigated later ... you need to make investment
to become compliant, and that will impact growth." 
    
    MING LIAO, FOUNDING PARTNER, PROSPECT AVENUE CAPITAL:
    "The Didi probe is an epoch-making incident that marks the
end of barbarian growth of China's internet sector.
    "Over the past 20 years, the Chinese government leaned
toward efficiency and growth over fairness, taking a relatively
laissez-faire attitude toward tech companies' legal compliance
issues.
    "Companies like Didi are too big to be fixed. No one knows
what happens next. It's not time for bargain hunting for wise
investors.
    "The No. 1 question is: 'is your business legally
compliant?' If you have compliance issues, other questions,
whether it's about business model or financial performance,
become meaningless."
    
    BRIAN BANDSMA, PORTFOLIO MANAGER, VONTOBEL QUALITY GROWTH:
    "I do think it is a legitimate issue and I don't think it
would be unreasonable to expect that Didi will need to make
increased investments to assure data security. I also believe
that it is likely Didi will face a meaningful fine.    
    "There has undoubtedly been excesses and limited investment
in satisfying regulatory requirements in the past. As investors
have limited visibility on whether companies are fully
compliant, it is difficult to say where the next potential issue
may arise.
    "Overall, this should lead prudent company managements to
increase internal assessment of businesses practices and reduce
a willingness to take risks. It also may have the potential to
reduce margins and growth potential."    
        
    ANDY MAYNARD, MANAGING DIRECTOR AND HEAD OF EQUITIES, CHINA
RENAISSANCE:
    "It's a complete sentiment knock to broad China TMT, no
matter where it's listed and trading.
    "Because it is data protection, there is an element of
national security linkages to it ... it's going to be
potentially far-reaching and much more widespread than the
anti-monopoly campaign, which seemed to be just really hitting
China e-commerce.
     "How long does this last? You've got to think at least a
couple of months ... but I do feel that the market is starting
to realise that this is a short-lived thing. There is no
rationale to try to kill these companies off because they're so
embedded into the fabric of the Chinese new economy."
    
    KEVIN FRANCIS MARCAIDA, EQUITY RESEARCH LEAD, CHINESEALPHA:
    "This is just the beginning of these security concerns. We
will likely see more crackdowns on companies that rely on
storing large data on Chinese users, which may take up to three
years before investors begin to regain confidence in these
businesses. 
    "In the meantime, these companies will have to adapt to
tougher government regulations imposed on them."
    
    ELINOR LEUNG, ANALYST, CLSA:
    "Reviews may extend to newly listed and to-be listed
companies, especially on U.S. exchanges which may provide
foreign governments access to sensitive information and data. 
    "Online platforms with social network and transaction
information could also be under security reviews.
    "Internet giants with strong technology advantage, such as
Alibaba, Tencent, and Baidu would likely face limited impacts,
as they already adopt higher security standards and have already
participated in multiple government projects."     
    
     ZHAN KAI, A SHANGHAI-BASED LAWYER:
    "For internet companies like Didi, they face not just issues
about data security. There are also issues around monopolistic
behaviours and labour protection. Risk is only partly priced
in."

 (Reporting by Samuel Shen, Andrew Galbraith in Shanghai, Tom
Westbrook in Singapore; Editing by Rashmi Aich and Mark Potter)
 ((samuel.shen@thomsonreuters.com;  +86 21 20830018; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))