(Bloomberg) -- Friday’s attack by President Donald Trump on WeChat may have pushed many investors to offload Asia’s technology shares. But for some, the selloff has presented a good buying opportunity.Jian Shi Cortesi, a fund manager at GAM Investment Management in Zurich, bought some Chinese internet stocks on Friday and plans to further increase holdings if the stock prices pull back more.“The U.S. ban on Chinese internet companies will have little impact on the revenue and earnings of most listed Chinese internet companies,” Cortesi said in an interview. Her Asia Focus Equity Fund has a third of its investments in internet stocks, and beat 93% of its peers in the past year. “It hurts sentiment, which could push the stock prices lower and create an opportunity to buy.”Trump’s escalation of his confrontation with Beijing, banning U.S. residents from doing business with TikTok and WeChat apps, wiped about $77 billion off the four largest Asia technology firms’ valuations on Friday and highlighted the political risks faced by regional companies, particularly those in China.But Asian tech bulls aren’t flinching.“President Trump’s noise provides a buying opportunity,” said Gary Dugan, chief executive officer of the Global CIO Office in Singapore. “Valuations are low on international comparisons and many are globally extremely competitive.”WeChat operator Tencent Holdings Ltd. fell another 3.4% on Monday. Its peer Alibaba Group Holding Ltd. also declined 2.7%. Technology stocks in the U.S. had a selloff Friday as investors took note of the stepped up confrontation with China.Read: Tencent Shares Fall Further as Worries About U.S. Action PersistThe value of the four largest stocks on the MSCI Asia Pacific Index, all of them tech firms, still lag behind their American peers. The group -- Alibaba, Tencent, Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. -- trade at an average of 25 times estimated profit for the next year, versus the 34 times of the more familiar tech giants atop the S&P 500 Index.The valuation gap had been narrowing since June, when the Asian companies traded at their cheapest since 2015. JPMorgan Asset Management’s Oliver Cox, who manages the JPMorgan Pacific Technology Fund, says the U.S.-China tiff doesn’t change the long-term story. He believes Asia has been repeating many of the U.S. trends in an earlier stage of evolution.That implies “a much faster growth rate, more promising outlook and therefore greater upside potential for Asia Pacific tech stocks compared with the more mature, slower-growth U.S. names,” he said. The four Asia tech titans gained an average 22% this year, lagging behind a 40% average gain in their U.S. peers.“The gap could be closer,” Pruksa Iamthongthong, a senior investment director for Asian equities at Aberdeen Standard Investments, said of the valuation difference. “On a three-year trajectory we will see a clear pathway on how they want to monetize businesses that they have invested in a long time ago.”Alibaba, Tencent Hold Their Lead as New IT Hastens Fintech ShiftStill, U.S. capital markets remain by far the deepest, most diverse, and most attractive in the world, said Andy Wong, senior multi-asset investment manager at Pictet Asset Management, adding U.S. leadership in shareholder value, corporate governance, liquidity, and innovation warrants a higher multiple.Yet a weakening U.S. dollar may also prompt foreign investors to look at foreign assets, and Asia tech presents good opportunities given structural growth drivers, according to Suresh Tantia, a senior investment strategist at Credit Suisse Group AG.(Updates share prices in seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- With the stroke of a pen, Donald Trump made his strategic fight with China hit home for potentially billions of people -- generating confusion, panic and fear around the globe.The U.S. president’s move to ban the Chinese-owned TikTok and WeChat in just over six weeks from now sent shockwaves through the tech industry and the many American businesses who rely on the apps to sell goods in China.The decision also spurred alarm on Chinese social media, with WeChat users in the U.S. posting contact information so friends and family could reach them if the app disappeared. An online forum popular with stock investors asked users if they would give up their iPhones or WeChat if Apple Inc. eliminated the app from its store: They voted to ditch their phones by a margin of 20 to one.Of all Trump’s shots against China, from imposing tariffs to battling Huawei Technologies Co. to ending Hong Kong’s special trading status, the executive orders against TikTok and WeChat potentially have the widest impact. Beyond the financial blow, they threaten to sever communication links among the people of the world’s biggest economies in addition to spurring a decoupling of the tech industry that could ripple around the world.“This move points to a hegemonic war -- the U.S. is trying to suppress China’s rise as a super power,” said Yik Chan Chin, who researches global media and communications policy at the Xi’an Jiaotong-Liverpool University in Suzhou. “All these things will leave a bad impression in China, and the tide of nationalism is already very high right now.”It’s hard to overstate how ingrained WeChat and Tencent are in China and among its diaspora: WeChat, which has more than 1 billion users and is owned by Tencent Holdings Ltd., is relied upon so heavily that many people have never exchanged phone numbers or emails. From Wal-Mart Inc. and Starbucks Corp. to the NBA and Nike Inc., nearly every major American consumer brand with business in China is deeply intertwined with Tencent and its network, which includes WeChat and investee JD.com.Jason Gui, co-founder of San Francisco-based startup Vue Smart Glasses, said his team has to rely on WeChat to communicate with suppliers in China and a ban would be very “disruptive.” Emails sent to manufacturers in China are often unanswered for days, whereas inquiries through WeChat will get immediate attention, he said.“When the U.S. imposes these bans, they may not realize how intertwined the relationships between U.S. and China have become,” he said. “Our communication lifeline with China depends on WeChat. It hurts small businesses that have limited resources to figure out how to circumvent these bans.”‘Hot War’China officially reacted with caution on Friday, with Foreign Ministry spokesman Wang Wenbin defending the companies and saying the U.S. “is using national security as an excuse and using state power to oppress non-American businesses.” Just a day earlier, Foreign Minister Wang Yi tried to offer an olive branch by urging the U.S. to “reject decoupling” and stop “any attempt to artificially create a so-called ‘new Cold War.’” Yang Jiechi, a Politburo member, said the door for talks with the U.S. is still open.Trump’s administration has stepped up its campaign against China in recent weeks, betting that a hard line against Beijing will help him win November’s election despite upsetting millions of younger TikTok users. The U.S. also announced on Friday it is placing sanctions on 11 Chinese officials and their allies in Hong Kong, including Chief Executive Carrie Lam, over their role in curtailing political freedoms in the former U.K. colony.Secretary of State Michael Pompeo meanwhile has urged American companies to bar Chinese applications from their app stores, part of his “Clean Network” guidance designed to prevent China from accessing the personal data of U.S. citizens. Pompeo’s comments have generated alarm in China. Hu Xijin, editor of the Communist Party’s Global Times newspaper, suggested a division of the internet that stifles commerce and ties between people would prompt the risk of a “hot war” to rise.But for many U.S. officials, the bans are simple reciprocity. China walled off its own online sphere years ago, creating an alternate universe where Tencent and Alibaba Group Holding Ltd. stood in for Facebook Inc. and Amazon.com Inc.Yet while President Xi Jinping was an early proponent of cyber-sovereignty, China’s view has changed as its tech champions have become fierce global competitors. By banning certain apps, the U.S. is also looking to deprive China of valuable data that is essential for honing the algorithms that will fuel the modern economy powered by artificial intelligence.The U.S. also potentially has a lot to lose in terms of soft power. Beyond angering the roughly 5 million Chinese Americans, and hundreds of thousands of Chinese students in America, there’s also the risk that other countries start to ban U.S. technology.‘Awful for America’“Pretty much any large country can kick out Facebook and make their own social network if they want to legislate that,” said Matthew Brennan, managing director of marketing consultancy China Channel. “That would be awful for America. But that’s the road we’re going towards with this kind of legislation.”While the short-term economic impact won’t be large, the decoupling of the tech industries will ultimately lead to slower global growth in the long run, according to Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings. And they could ultimately be more significant than the trade deal, which is one of the few areas of cooperation that remain.“These sorts of measures on technology are as serious if not more serious than tariffs because these are the growth industries of the futures,” Roache said. “Once you erect barriers how do you take them down? That’s the question.”(Updates with Hong Kong sanctions detail in 10th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- TikTok founder Zhang Yiming built his tech empire by fending off giants like Alibaba and Tencent at home and humbling Facebook abroad. Now all that could get torn apart at the hands of the brawling, nationalistic leaders of the world’s two most powerful countries.U.S President Donald Trump hit TikTok in its most lucrative market Thursday when he moved to ban it -- along with Tencent’s super-app WeChat -- in 45 days. That followed efforts by Trump to get Zhang to sell off TikTok’s U.S. operations to Microsoft Corp. or another American suitor by Sept. 15. When Chinese President Xi Jinping’s military became embroiled in a deadly border clash with India in June, a surge of anti-China sentiment led to the banning of more than 60 Chinese apps -- including TikTok in the country where it has the most downloads.TikTok’s success has made it a high-profile target for Trump, whose tough stance on China -- sparring on everything from trade to Huawei Technologies Co. to the South China Sea -- is a centerpiece of his re-election campaign. Besides TikTok and WeChat, his administration has considered banning more Chinese apps, an effort to prevent Beijing from accessing data from Americans using tactics once championed by China.Zhang, whose ByteDance Ltd. owns TikTok, was on the verge of building the world’s third truly global advertising and social-media force. Now, pressure from Beijing and Washington has put that dream in peril, forcing the 37-year-old billionaire founder to make a decision rooted in politics not business. As anger mounts in China about Trump’s attacks on TikTok, Zhang could even decide not to sell. TikTok said in a strongly worded statement Friday that it’s “shocked” by Trump’s ban and will pursue all remedies available, including through the U.S. courts.Read: Trump Widens China Tech Attack, Banning Tencent’s WeChat, TikTokByteDance’s international adventures “are nice little jaunts, but losing a few overseas markets isn’t an existential threat to the company,” said Michael Norris, a research and strategy manager with the Shanghai consulting firm AgencyChina. “But losing China and falling foul of the authorities in Beijing is.”Zhang has never been one to do the expected. For years, he managed to remain independent from Alibaba Group Holding Ltd. and Tencent Holdings Ltd. -- the twin suns of China’s internet. His Chinese tech peers can’t say the same. Ride-hailing giant Didi Chuxing counts Tencent as a major investor. So does food-delivery platform Meituan Dianping.Zhang has made it clear he doesn’t want to go down the same path. Responding to rumors in 2016 that Tencent was willing to buy ByteDance, Zhang wrote on social media that he didn’t found his company just to become a Tencent employee. In the post, he quoted lyrics from the band American Authors, “So if I’m gonna go at all, go big or go go go, go big or go home.”Born in 1983 in the southern city of Longyan, Zhang is the only son of civil servants. He studied programming at Nankai University in Tianjin. There he built a following on the school’s online forum by repairing classmates’ computers and also met his future wife. After graduation he joined Microsoft for a brief stint, but later said in an interview that the job was so boring he often “worked half of the day and read books in the other half.”Zhang started ByteDance in 2012, luring China’s top engineers with hefty paychecks. One of the startup’s first apps, Neihan Duanzi -- it means “implied jokes” in English -- used artificial intelligence to tailor a selection of memes to individual tastes. After attracting tens of millions of users and refining its AI algorithms with massive data, ByteDance used the same approach to create the news-recommendation app Jinri Toutiao, or “today’s headlines.” It became ByteDance’s first blockbuster hit.It wasn’t long before Zhang ran afoul of Beijing. In 2018 he apologized to regulators for spreading content not in line with “socialist core values” and shut down the joke app. “We profoundly understand that our rapid development was an opportunity afforded us by this great era.” Zhang wrote in an open letter. “I thank this era. I thank the historic opportunity of economic reform and opening; and I thank the support the government has given for the development of the technology industry.”Read: 35-Year-Old Unknown Creates the World’s Most Valuable StartupThe mea culpa is an early example of the hoops Zhang has had to jump through to keep ahead of regulators, first at home and later overseas. He initially tried to push a Toutiao-style news app in English-speaking countries, but only became a serious rival to Facebook Inc. and Alphabet Inc. with short videos. In 2017, ByteDance purchased the lip-syncing app Musical.ly that later morphed into TikTok, a deal that has been under the review by the Committee on Foreign Investment in the United States, or CFIUS, for allegedly posing national-security threats.TikTok soon took off globally, with more than two billion downloads to date, along with its Chinese twin service Douyin. The U.S. is TikTok’s most lucrative market in terms of in-app spending and is grabbing ad revenue that might otherwise go to Facebook’s Instagram and other social-media apps. Today ByteDance is the world’s most valuable startup, with a valuation of as much as $140 billion. Last year, Zhang’s company generated more than $3 billion of net profit on more than $17 billion in revenue, Bloomberg reported in May.But amid growing concerns about Chinese power, TikTok has become an object of suspicion in several countries. The last thing Zhang wants is an outright ban in the U.S., where he has built up TikTok’s operations, hired an American chief and reassured regulators that user data won’t be shared outside the country. He has also stepped up lobbying in Washington, pledged to create 10,000 American jobs and created a $200 million fund to support U.S. TikTok stars. But these measures have failed to satisfy the Trump administration.“Zhang is facing the same dilemma that both Chinese and U.S. tech firms face entering each other’s market space,” said Kendra Schaefer, head of digital research at consultancy Trivium in Beijing. “Chinese platforms, including those run by ByteDance, are walking the same fine line domestically as many foreign tech firms do in China: placating regulators while attempting to innovate and stay profitable.”The reclusive founder has expressed his frustration with U.S. authorities to ByteDance employees. In an all-hands memo on Monday, Zhang said he disagrees with CFIUS’s demand that he sell TikTok’s U.S. operations. “We’ve repeatedly stressed that we’re a privately run business,” he wrote. One day later, in another letter to China staff, he called the forced sale “unreasonable.” “But this is not their goal, or even what they want,” he said. “Their real objective is to achieve a comprehensive ban.”Zhang can’t count on the kind of support his countrymen have lavished on Huawei founder Ren Zhengfei, who is locked in his own battle with the Trump administration. Huawei is a bona fide national champion that builds state-of-the-art smartphones and networking gear. ByteDance makes consumer apps, however popular. Zhang even had to hide his posts on the microblogging site Weibo after his account was flooded with comments slamming him as a “traitor” for even considering selling to an American company.Still, Beijing seems to have his back -- if only for geopolitical leverage. In a daily press conference on Friday, the Foreign Ministry blasted the U.S. for “using national security as an excuse and using state power to oppress non-American businesses.” State newspaper China Daily had earlier called on ByteDance to defend its rights legally against what it described as a “smash and grab” by Trump.When asked about privacy concerns brought by Toutiao hoovering up user data in 2015, Zhang told a panel in Shanghai, “Machines and algorithms will grow smarter, but they are always innocent.” When challenged by the moderator that he’s the real boss behind the machine, Zhang replied with a chuckle: “I’m also always innocent.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.