China cyber security: the tech stocks investors have overlooked

China’s technology sector is growing much faster than China’s cybersecurity industry. The latter stimulus comes from government policy enforcement as much as external threats, as illustrated in the United States by ransomware attacks. This should boost local cybersecurity stocks that are overlooked.

Beijing’s new cybersecurity program will require key industries such as telecommunications to spend at least one-tenth of their IT budget on cybersecurity over the next two years. The same applies to government agencies and state-owned enterprises. Meanwhile, a new data security law will come into force in September that creates a comprehensive legal framework for data use.

This push is part of a broader effort to tame the technology sector, which was previously growing in conscientious negligence. Denying access to Chinese data by espionage can be a greater impetus than protecting the privacy of its citizens.Cost rise hacking It’s a further problem for the business.

A government agency that I have hardly heard of until this month is leading the fight — painfully Didi.. China’s Cyberspace Administration has ordered the ride-hailing service giant to remove the app from its local online store. This threatened future earnings just days after Diddy’s initial public offering in New York.

This is a great opportunity for the local cybersecurity industry. This sector has long been overshadowed by attractive consumer businesses. Stocks are well below the local social media and e-commerce giants. Shares in Venustech, one of China’s largest security groups, have fallen by a fifth in the past year, despite a rise in the benchmark CSI300 index.

As a result, that stock and its rival Nsfocus Technologies stock are currently trading at less than 30 times futures earnings. That’s less than half that of US peers such as Fortinet and Palo Alto Networks.

As Beijing hands more power to aggressive data watchdogs, local businesses may see higher costs from non-compliant systems. According to research firm Equal Ocean, China accounts for only about 1% of global cybersecurity service spending. That number is set to rise and is a trend that investors should expect to benefit from.

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