(Bloomberg) – Tencent Holdings Ltd. fell on Tuesday after a worldwide rise in stocks pushed its market value to the $ 1 trillion summit for the first time.
The Chinese Internet giant lost up 5.1% in Hong Kong, its biggest drop in a month, putting its market capitalization at $ 900 billion. Its shares rose 11% on Monday, Tencent’s best gain since 2011. There were few obvious catalysts for such a high, although investors cited an ambitious listing plan by video startup Kuaishou Technology, in which Tencent has a share, as well as a high note from analysts at Citigroup Inc .. The options market went crazy, with a contract expiring on Thursday with 118.3 thousand% up.
Tencent was the latest mega-cap company to benefit from investor enthusiasm for the technology sector, with its impending milestone a marker for the euphoria sweeping stocks globally. Prior to Tuesday, the shares had added $ 251 billion in January alone – by far the largest shareholder wealth creation in the world. Warnings are rising that easy monetary policy is fueling bubbles in global stocks, especially in the United States, where the gains were led by Nasdaq.
As investors look for cheaper alternatives, they pile on Hong Kong stocks. This helped make the Hang Seng China Enterprises Index the best performer among the world’s top benchmarks last month. Adding fuel to the recovery has seen record inflows from mainland China investors into the city’s stock. Tencent, whose social media platform WeChat boasts more than a billion users, is the primary target, accounting for about a quarter of the total money that comes in through share links.
“The shares are pushing the limits,” said Jackson Wong, director of asset management at Amber Hill Capital Ltd. “Obviously, this was driven by liquidity. Beijing wants to direct money to Hong Kong and is encouraging many new ETFs and mutual funds to buy shares in the city. “
On Tuesday, 10-year government bonds fell a maximum of four months after China’s central bank drained funds from the system, raising concerns about how much more Hong Kong’s stock could recover due to liquidity squeeze.
Although Tencent has long been a favorite of investors in Asia, with a return of more than 100,000% since its initial public offering in 2004, the stock presents risks.
In 2018, a government crackdown on China’s online gaming industry squeezed Tencent’s most profitable business, which at the time accounted for about 40% of its revenue. Along with the slowdown in the Chinese economy and the weakening of the yuan, Beijing’s nine-month suspension of new game approvals contributed to a 22% drop in shares.
A campaign against monopolistic practices since the end of last year has targeted many of the sectors in which Tencent and rival Alibaba Group Holding Ltd. operate, including the online payments sector. But while increased regulatory risk has left Alibaba’s shares about 16% lower than their October peak, Tencent closed with seven new records in the past eight sessions. One factor contributing to the divergence: Alibaba’s shares in Hong Kong are not included in trade links with exchanges on the continent.
Tencent would be the second Chinese company to join the trillion-dollar club, after PetroChina Co., which for a brief period was worth more than that in late 2007 before it collapsed in value. American technology giants Apple Inc., Amazon.com Inc., Alphabet Inc. and Microsoft Corp. are also worth more than $ 1 trillion each, as well as Saudi Arabian Oil Co.
Tencent was founded in 1998 by four college colleagues and a friend from Shenzhen who created a Chinese version of the ICQ instant messaging service. Led by “Pony” Ma Huateng – ma means “horse” in Chinese – the company’s chat software has become the main communication tool for a generation of young Chinese people.
Tencent posted a net profit of 38.5 billion yuan ($ 5.9 billion) in the three months ended in September, driven by a gain of 11.6 billion yuan with increased valuations of its investments in other companies. The rise in technology stocks is expected to further increase its earnings, given the ownership of some of the industry’s biggest players, from JD.com Inc. and Meituan to electric vehicle maker NIO Inc.
Still, Tencent’s rise has surpassed all but the most optimistic analysts’ forecasts. The closing level of HK $ 766.50 shares on Monday was almost 10% higher than the 12-month target price compiled by Bloomberg, the biggest gap since 2014.
(Updates the market price in paragraph 2)
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