China’s Internet Stocks Look Cheap but Regulators May Not Be Done Yet

Text size

Angst about more Chinese regulations that could restrain companies’ growth prospects hovers over Chinese internet stocks—and provides a reason for continued caution for bargain-hunters.

The Cyberspace Administration of China notified some of the country’s biggest internet companies of new rules that will require them to seek approval for investment deals, The Wall Street Journal reported on Wednesday, citing people familiar with the matter. The internet regulator, on its official

WeChat

account, said the draft rules circulating on social media weren’t issued by the agency, the Journal reported.The back and forth came as TikTok owner ByteDance on Wednesday said it was reducing its investment team and eliminating a group that focused on financial returns as part of a restructuring, according to a report by Reuters.

And a policy document from the National Development and Reform Commission called for stronger supervision over advertising and tax reporting for internet platforms, greater transparency on how they are run, beefed up oversight for those that deal with cross-border data flows, revised legislation aimed at monopolies, and security in data-heavy internet platforms.What’s clear is the regulatory cloud is unlikely to blow over quickly as Beijing pushes toward creating a more level playing field and better control over data, and continues to focus on stability over unbridled growth. That crackdown, of course, has walloped Chinese stocks—internet companies especially.

And the cheap valuations, with

Alibaba Group Holding

(BABA) trading at high-teens price to earnings multiples and far cheaper than global peers, has drawn some bargain-hunters in recent weeks. But Barron’s has been cautious on the…