Newsflash | China Releases Draft Antitrust Guidelines
ADDED:
12 November 2020
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Regulatory Concerns 

On 10th November, China’s State Administration for Market Regulation released a new set of draft guidelines aimed at curbing monopolistic behaviour amongst internet companies. Containing 22 listed items, the draft guideline seeks to gather public opinion and feedback on antitrust behaviour in the internet platform economy.

Shares of Chinese Internet giants were sold down heavily in the wake of the news. Alibaba, Tencent, Meituan, and JD.com lost over 10%-20% of their market cap within 2 trading days.

Key features that were included in the antitrust consultation paper include:
a. unfair exclusion that undermines competition
b. unfair pricing of products that deters competition
c. use of big data / algorithm / technology that limits or deter competition

It is important to note that this is not law yet. Consultation papers are usually circulated to showcase and guide industry players on the regulatory direction intended by authorities. This gives industry players time to adapt and make the necessary adjustments to their respective operations. The final version of the law could be different from what is stated in the papers now.


However, it is uncertain why Chinese regulators are releasing the draft guidelines now. That said, we have seen the government tightening their grip on different industries including Education, Healthcare, Internet (gaming, advertising, content) in recent years.

The government has taken the position to set proper boundaries and provide guidance to companies in fast-growing industries that will ensure healthy and sustainable growth.

There could be several potential impact to key Internet companies. These could cover the:-
a. use of personal data to feed targeted advertising for all internet companies
b. forced exclusivity of platforms on merchants (especially Meituan, Alibaba)

Market Impact

It is worth noting that the heavy sell-down of Internet stocks could be due to multiple factors acting together, aside from the release of the draft antitrust guideline. These include latest news of a vaccine breakthrough by Pfizer that would reverse pandemic beneficiaries. This also sparked a rotation from value into growth.

Our view is that the items discussed in the consultation paper is heavily dependent on subjectivity. The implementation of such law will not be easy. Internet companies may need to make tweaks and adjustments to their business in order to comply with the new regulations.

Regulatory pressure could persist for the next 3 - 6 months as more information about the guideline is released. That said, we believe major internet companies in China have already developed a strong business moat that will not be easily compromised.

Portfolio Positioning

We have lightened our exposure in the tech sector, as we were heavily overweight before and valuations have turned lofty. We remain comfortable with our positioning and will continue to monitor developments closely of any potential tightening of regulation in China.

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TENG CHEE WAI

Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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