(Bloomberg) -- Call it regulatory arbitrage. While big Internet champions in developed democracies are running into challenges with authorities cracking down over privacy-protection concerns, their counterparts in China have little such problem, and that can make for better investment performance, according to PineBridge Investments.
The distinction has been important in navigating the volatility in technology stocks in recent weeks, says Sunny Ng, a Hong Kong-based multi-asset portfolio manager with PineBridge, which oversaw $85 billion at the end of 2017. Ng’s team runs the $53.3 million PineBridge Asia Balanced Fund, which has Tencent Holdings Ltd. and Alibaba Group Holding Ltd. among its Top 10 positions.
“One of the big competitive advantages that the big tech names in China have is they are very close to regulators,” Ng said in an interview in Hong Kong. “They don’t have privacy issues nearly as much, obviously, because it’s just a different society and people are not as concerned with data privacy as they are over there.”
Facebook Inc. slumped more than 10 percent in March after revelations that data on millions of its users had been improperly obtained by an analytics firm, sparking a consumer uproar and hours of congressional testimony by CEO Mark Zuckerberg. The CEOs of Twitter Inc. and Alphabet Inc.’s Google may also be pressed to run the gauntlet of lawmakers ramping up scrutiny of data privacy issues. Facebook trails Tencent and Alibaba shares this year.
China, where the single-party state ensures tight monitoring of its citizens’ access to information, presents other challenges than outcries over perceived privacy violations, however. Authorities can swiftly shut down apps, websites and services deemed to run afoul of the public interest, with little recourse on the part of companies involved.
Shares of Tencent slumped immediately following criticism last July by the People’s Daily, considered the Communist Party’s mouthpiece, of the company’s most profitable smartphone game. Baidu Inc., China’s biggest search giant, in October forecast weaker-than-expected revenue last October due in part to self-imposed curbs on ads and content taken at a politically sensitive time.
But Baidu’s action underscores how careful China’s companies are to stay on the right side of authorities, and that could leave them more resilient from an investor perspective.
“Structurally, Asia is at a competitive advantage” when it comes to regulation, Ng said. “They have a regulatory arbitrage over the U.S. and European tech names.”
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