Why Rajeev Thakkar loads up on US tech but won’t touch Chinese stocks

Rajeev Thakkar, chief investment officer at PPFAS Mutual Fund, said US technology giants remain key bets in his portfolio thanks to their pricing power, global scale and positioning on the right side of structural shifts such as cloud computing, generative AI and digital advertising.

Speaking on the Wealth Formula podcast with N Mahalakshmi, he said, he has however stayed away from investing in Chinese tech despite its low valuations due to opaque structures, legal risks and state intervention.

Asked about the impact of a potential dollar devaluation on US tech stocks from an Indian investor’s perspective, Thakkar said it was not a threat. “Whether the dollar falls or not, companies like Microsoft, Amazon, Alphabet and Meta have diversified revenue streams,” Thakkar said, noting that as much as 30% to 60% of their sales come from overseas markets. “If the dollar weakens, reported profits actually go up, because euro or rupee sales translate into higher dollar revenues. But that is not the main reason we own them. These companies deliver far more value than they charge, which makes them difficult to dislodge even in tough environments.”

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He pointed to “free optionalities” embedded in their businesses, from autonomous driving and ride-hailing to streaming and cloud, which could become significant revenue lines in the future.

When asked why he has not invested in Chinese equities, often hailed as cheap and seemingly aligned with his value-investing mindset, he said he had considered the opportunity ‘very seriously’ but chose to stay away. “People ask, if you buy Amazon why not Alibaba, if you buy Google why not Baidu?” Thakkar said. “The first thing not many know is that under Chinese law, it is illegal for foreigners to directly own these companies. What investors actually hold are shell companies domiciled in places like the Cayman Islands, with side agreements to the Chinese operating companies. The legality of those agreements has never been tested.”

He cited past instances such as Alibaba’s spin-off of Alipay — now Ant Financial — in which foreign shareholders like Yahoo weren’t consulted and saw value disappear overnight. “Jack Ma made some statements and went missing for a long time. That shows how difficult it is to make money in Chinese stocks,” Thakkar said.

The broader issue, he added, is China’s emphasis on “common prosperity” which makes it more focussed on social impact as opposed to capitalism (that is more aligned to delivering shareholder returns).

Thakkar also said that global stocks were cheap compared to Indian stocks, but that’s a reality he lives with.

He said, for more than three years, as mutual funds have hit overseas investment ceilings, individuals remain free to invest abroad via avenues like Gift City, which has emerged as a popular jurisdiction for dollar-denominated feeder funds. PPFAS itself is in the process of setting up operations there. “I’m hopeful that, down the road, mutual fund limits will also be increased,” he said.

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