As investors in the global tech and internet sector navigate US-China tensions, trade tariffs and supply-chain uncertainties, several media reports point to building regulatory headwinds too. The US Department of Justice (DoJ) is said to be preparing a new antitrust probe into the Google search business, according to The Wall Street Journal and Reuters. Separately, The Washington Post reported that the DoJ and the Federal Trade Commission (FTC) had agreed to split primary oversight of Google and Amazon, suggesting more focused regulatory enforcement efforts.

While the news highlights rising regulatory risks for the sector, we see several reasons not to be overly concerned:

* Large US tech giants are no strangers to regulatory action, with most top-level firms having faced significant fines and legal remedies in multiple jurisdictions. For many top tech companies, anti-trust and regulatory considerations are built into their business strategy and review process. Previously, hefty regulatory fines have proven manageable against very strong balance sheets.

* With national tech champions increasingly central to global trade disputes, politicians and regulators may be more cautious in levying penalties at home that could stifle innovation and limit long-term technological advantages. Last year, the top six tech and internet firms spent USD 104bn in R&D in the US.

* China’s own tech regulation cycle last year offers some lessons for investors, in our view. Nearly every major tech segment in China, from electronic gaming to advertising and fintech, faced stiffer regulations. The resulting de-rating across the sector faded, and is not evident today.

So while we would agree that regulatory risk for the tech and internet sector is increasing globally, we think the impact of it should be manageable. Previous investigations and measures have focused primarily on privacy and monetization, without prescribing more damaging material changes to business models. We recently cut our overweight position in information technology, instead preferring the communication services sector, which includes key internet services companies.