Alibaba, Tencent Look Cheap Even With China Crackdown Risks, NYU Professor Says

(Bloomberg) -- Some of China’s bellwether Internet stocks are undervalued even as risks of further downside from Beijing’s regulatory clampdown persist, according to a finance professor at New York University.

The constraints brought in by recent Chinese government actions on tech behemoths are “reasonable” and any potential ban on firms using shell companies for foreign listings will unlikely be retroactive, Aswath Damodaran wrote in a blog post Wednesday. 

Alibaba Group Holding Ltd. is the most undervalued -- by 12.7% compared to its fair value -- followed by Tencent Holdings Ltd. at 8%, while Didi Global Inc. and JD.com Inc are close to being fairly valued, he wrote. The Stern School of Business professor said he prefers Tencent over Alibaba, noting the former’s more “rounded” business mix as one of the reasons. 

Beijing’s crackdown on the sector is more about “exercising control over both companies and data” than concerns about consumers or competition, Damodaran wrote. That said, “there is substantial downside if the government becomes openly and actively adversarial, with Didi dropping to becoming almost worthless, if that happens.”

China’s battered Internet stocks sprang back to life earlier this week, delivering a four-day gain as investors stepped up bets that the worst of the regulatory assault on the sector might be over. But the rally lost momentum as the week draws to a close, amid Beijing’s fresh criticism of the nation’s ride-hailing giants.

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