Vanguard Invests in Youth-oriented Chinese Tech Stocks

World's largest mutual fund has acquired additional equity in Alibaba, Tencent and Huya during the third quarter, though it expects China's economy to weaken further.

Belinda Zhou
    Dec 20, 2019 10:00 AM  PT
Vanguard Invests in Youth-oriented Chinese Tech Stocks
author: Belinda Zhou   

Asset manager Vanguard reportedly increased its backing of a number of China youth-focused tech firms in the third quarter, while issuing a conservative outlook on growth for 2020.

The New York-headquartered mutual fund allocated approximately $1.3 billion to Alibaba Group Holding Ltd. (NYSE: BABA), $44.5 million to Tencent Music Entertainment Group (NYSE: TME) and $39 million to a game livestreaming platform, Huya Inc. (NYSE: HUYA), according to state media Securities Daily. 

Alibaba accounts for 5.1% of Vanguard's International Growth Fund Investor Shares. Tencent was Vanguard's third-largest holding, at 4.61%. American e-commerce giant Inc. (Nasdaq: AMZN) was fourth.

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(Alibaba, Tencent ranked among top three holdings; Image: Vanguard)

Vanguard and Alibaba are cooperating in a rare opening up of China's financial market to outside institutions. The asset manager announced a deal on Monday to launch a joint venture with Alibaba's fintech arm, Ant Financial Services Group, aiming to offer wealth management services to Chinese individual investors.

Still, Vanguard lowered its 2020 growth forecast to 5.8% for China in a reported released earlier this month.

"This is a noticeable decline from the high-6% growth China experienced over the past three years and represents a continued slowdown from 2019's expected 6% growth," Vanguard analysts wrote.

Vanguard explained that the slowing economic growth and expectations for persistent U.S.-China tensions will lead to policy uncertainty, which will drag down China's near-term growth by 0.8%. At the same time, China's new economy will suffer most in private enterprise industries reflecting domestic consumption, high-skill manufacturing and service industries.

"On a positive note, the expectation for policymakers to continue implementing targeted stimulus measures and a dovish turn from global central banks place the odds of a hard landing, or growth below 5%, as relatively low (about 10%)," Vanguard added.

Shares in Alibaba inched 1% higher by midday on Friday, to $212.90 per ADS. Huya Inc. (NYSE: HUYA) was trading 10 cents lower, at $17.20 per American depositary share.