Top fund manager China bets on technology as Beijing tightens grip

(Bloomberg) — One of China’s largest mutual fund companies is betting on the country’s Internet giants, just as a containment by Beijing sends shockwaves through the sector.

China Asset Management Co. Friday completed fundraising for its roughly 400 million yuan ($62 million) Internet Leading Enterprises Mixed Fund, saying it sees an opportunity to build positions amid market pessimism in the wake of China’s drive to rein in its largest tech companies to keep.

“Short blows to sentiment have created a great buying opportunity,” said Tu Huanyu, the product manager. He added that the fundraising process was “difficult” given sentiment toward the industry.

One of the products Tu manages, the China AMC Innovation Frontier Equity Fund, has raised 15% this year, beating 69% of its competitors. China Asset Management, the fourth largest mutual fund manager, oversees 540 billion yuan worth of mutual funds, excluding money market funds, according to the latest company data as of late March.

A measure of Hong Kong-listed technology stocks is down more than 30% from a February peak. Tencent Holdings Ltd. and Alibaba Group Holding Ltd. have been the biggest barriers to the Hang Seng index over the past three months, both dropping at least 11%. Tencent is trading at less than 28 times future earnings, compared to nearly 40 times in January.

On Monday, the Hang Seng Tech meter fell 2.4%, its biggest drop in more than a week.

Beijing has tried to impose stricter controls on the country’s tech companies, many of which have near-monopolies in their fields and huge amounts of user data. Since last year, President Xi Jinping’s administration has taken steps to rein in these companies — from derailing Ant Group’s blockbuster IPO to new rules that curb monopolistic practices in the internet landscape. The decision of Didi Global Inc. to push through a listing in New York, despite objections from regulators, led to a curtailment of foreign listings.

The start date of the new fund has yet to be determined. With up to 95% of its assets in equities, the majority of its non-cash positions would be invested in leading Internet and related companies that, under its mandate, could maintain a competitive advantage. The fund may invest up to 50% of its equity holdings in Hong Kong-listed equities through its trading link with the city’s market. Tu declined to comment on planned companies.

“The industry is at a stage where internet giants have taken on high weight and significance in the global economy, and they need to take on greater social responsibilities,” Tu said. “Buying during these short-term challenges will increase our future prospects for returns.”

(Adds the performance of the Hang Seng Tech Index in Section 6)

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