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China's BATs should make sharp gains in 2018

China's BATs should make sharp gains in 2018

Chinese tech conglomerates can expect stock values to soar this year despite the specter of a long-running Sino-US trade dispute and other challenges.

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By Noah L. Wilson 16.08.2018

Chinese tech conglomerates can expect stock values to soar this year despite the specter of a long-running Sino-US trade dispute and other challenges, a leading research analyst claimed on Wednesday.

Chinese tech stocks (BATs) covering the big three companies – Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. – performed particularly well last year and continued to a be a safe bet for investors, according to Constellation Research Principal Analyst Ray Wang.

Tencent saw notable declines on Tuesday and Wednesday after the decision by Chinese authorities to block the sale of Monster Hunter: World in a general climate where approvals for game licenses are becoming more difficult. The Chinese stock market is also being weighed down by the ongoing trade standoff with the United States.

While these factors suggest that Chinese tech could struggle in the short to medium term, Wang believes that BAT stocks will be able to shrug off major challenges and end the full year with gains of between 15% and 20%. He said: “I still think that there's a lot of money out there that has not gone into the market.”

He added: "There's no safe place to go, and what people are starting to think of is that they are treating these stocks as the safe stocks. They see this as an opportunity to go out and think about, this is like a safe bet, put it into FANG, put it into BAT… and you can't go wrong… They keep riding that market pretty hard."

The performance of BATs last year supports this sentiment, as stocks were up an average of 65.2% during the first eight months of 2017, which compared very favorably to FAANG and FANG stocks covering US tech leaders Facebook, Amazon, Netflix, Google Alphabet and Apple.

Wang also believes that China’s tech giants may become even more appealing in the future, as they will soon pay additional dividends. BAT will also increase due to the pervasive nature of connected devices, mobile and the internet, while China’s protectionist policies offer a platform for them to flourish on home soil.

Perhaps the most pertinent factor right now for investors is the fact that these tech conglomerates will not wilt in the face of any escalations in trade conflict. "There isn't a lot of exposure to what they're doing today inside other markets. You don't see a lot of Baidu in the US unless you are Chinese. WeChat, the same thing… There's not a lot of impact," Wang said.

He added: "They seem to be more of a nationalist market within a China market only, although they do have expansion plans. So they are protected, and they get to go out and reach out to other markets at the same time." 

Tencent has struggled in recent days, however, as it added 4% losses on Wednesday to the 3.4% drop from the previous day as stringent regulations continue to hamstring its WeGame gaming platforms and its ability to monetize video games. Since peaking earlier this year, Tencent has lost $160bn in market value, with around 10% of that value lost this week alone. 

Baidu has also retreated in 2018 with a 7.69% decline for the year to date. Alibaba has performed the best thus far with a modest uptick of 0.06%.

In other stock news, analysts have predicted that China’s asset management market is set to become the second-largest in the world and will continue be a more popular outlet for investors than stocks, which are still lower down the priority list.

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