For many years now, Chinese internet companies have been producing notable earnings expansion on the back of consumption-led growth in China.
As investments, these companies are not only growing strongly but they are cash generative and require little capital expenditure.
Good examples are the Chinese internet companies NetEase (online gaming) and JD.com (e-commerce). These have demonstrated their ability to grow profitably with a healthy focus on costs.
JD.com produced higher-than-expected profit numbers in 2019 primarily due to cost control, while NetEase sold a loss-making e-commerce business to Alibaba, showing a willingness to sell assets to realise shareholder value.
Alibaba's decision to list its shares in Hong Kong as well as New York represents a milestone for holders of Chinese ADRs. This could provide a solution should the US seek to block investment into Chinese companies.
More importantly, the fact that a holding in the US-listed Alibaba shares can be easily converted into a holding of the Hong Kong listed share means investors are protected from "low-ball privatisations" in the ADRs.
The success of Alibaba's listing may encourage other companies such as NetEase and JD.com to also list in Hong Kong.
We have notable exposure to Chinese web companies because the market is too sceptical about their ability to maintain strong growth.
However, there is a trend towards increasing regulatory scrutiny over internet companies. Regulation in the West is focused on preventing monopolistic behaviour and protecting data privacy, but the rationale behind Chinese regulations is less clear.
We believe, however, the government is keen to see national champions and concerns about regulation in China may be overblown.
Perhaps a bigger concern for us is the risk that new services and technologies can transform the industry landscape.
An example has been the growth of ByteDance (owner of TikTok), which has captured a large share of the time that internet users spend online. ByteDance's advertising revenue has grown to exceed Baidu's and Tencent's in a short space of time.
This proves there is still room for new entrants to make headway.
Will Lam is co-head of the Asian and emerging markets equity team at Invesco
• Chinese internet companies continue to beat expectations on growth
• Alibaba's secondary listing in Hong Kong is a positive development for other US-listed Chinese companies
• The Chinese government may start to regulate these firms more strictly
• Barriers to entry may not be as high as perceived