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Tencent is now a huge falling knife

The stock market superstar’s record-breaking sell-off is getting worse.
Bulls argue that this year’s challenges have done nothing to threaten Tencent’s dominance. Picture: Bloomberg

Is it time to catch the global stock market’s biggest falling knife?

For watchers of Tencent Holdings Ltd., it’s an increasingly pressing question. The Chinese internet giant’s record-breaking sell-off is getting worse, with Thursday’s 6.8 percent rout bringing losses since late January to $252 billion — by far the biggest wipeout of shareholder wealth worldwide. The stock, one of the most widely held in emerging markets, has tumbled for an unprecedented 10 straight sessions.

As investors around the world debate whether the best days are over for the tech-led boom in global equities, Tencent has emerged as a key market bellwether. The company’s more than 67,000 percent return from its 2004 initial public offering through January trounced that of every other large-cap stock worldwide, and its slide this year presaged a steep drop in tech shares from Tokyo to New York. Some money managers say it’s too soon to call a bottom.

“While it’s a good company and we obviously still like it, at the moment it’s the proxy of all the things investors want to avoid,” said Virginie Robert, the founder and president of Paris-based Constance Associes, whose global tech fund beat 99 percent of peers tracked by Bloomberg this year. Robert, who has an underweight position in Tencent, said she’ll refrain from adding to holdings until the company provides more clarity on its business outlook.

Jane Yip, a spokeswoman for Tencent, didn’t respond to requests for comment.

Founded by billionaire Pony Ma in 1998, Tencent had until recently captivated investors with its massively popular online gaming business, payments system and WeChat social networking platform. The Shenzhen-based company’s integral role in the lives of hundreds of millions of Chinese helped propel average annual earnings growth of about 48 percent over the past decade, faster than Apple Inc.’s 35 percent.

Now questions are mounting over whether Tencent’s growth is sustainable. That’s partly because of macroeconomic concerns, including a slowing Chinese economy and a weakening yuan.

But the biggest worry for many observers is regulatory meddling from Beijing. The company’s cash cow — online gaming — has become a liability for the stock after an industrywide government crackdown left the business, which accounts for about 40 percent of Tencent’s revenue, clouded in uncertainty. The country halted approvals for new games in March and authorities have given little indication of when the ban will end.

Policy makers are also tightening restrictions on Tencent’s fast-growing internet finance business as they try to reduce systemic risks in an economy saddled with record levels of debt. The regulatory squeeze has contributed to a 20 percent drop in analysts’ 2018 earnings estimates since February, according to data compiled by Bloomberg.

Tencent is taking steps to diversify. The company announced a reorganization this month, elevating its cloud computing business to a level on par with gaming and WeChat. It has also invested billions in startups doing everything from ride hailing to e-commerce.

Tencent has been buying back small amounts of stock, though its leadership hasn’t commented on the recent losses or reported adding to holdings in their personal accounts. The company repurchased the equivalent of about $108 million of shares from Sept. 12 through Thursday, regulatory filings compiled by Bloomberg show.

Bulls argue that this year’s challenges have done nothing to threaten Tencent’s dominance in its key lines of business and that the stock will rally once regulatory and economic headwinds fade. Despite falling earnings forecasts, analyst share-price targets tracked by Bloomberg imply a more than 60 percent gain over the next 12 months.

“We feel Tencent is as important as ever,” said Denis Barrier, San Francisco-based co-founder and chief executive officer at Cathay Innovation, which manages $1 billion. The stock rout “is not going to change the position of its market share,” Barrier said.

Still, even some long-term bulls are wary of piling in. Tencent’s 12-month forward price-to-earnings multiple has dropped from about 42 to 23, but it’s still higher than when shares bottomed after major declines over the past decade. Facebook Inc.’s multiple is 17, while Alibaba Group Holding Ltd.’s is 22.

“They are cheap,” said Mitchell Green, the Santa Barbara-based founding partner of Lead Edge Capital, which manages $1.5 billion. “But what is cheap can get cheaper.”

© 2018 Bloomberg L.P


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Why are the ‘low cost ETF ‘ guys so silent – and Satrix and …..
How about a Moneyweb article for pensioners on how to diversify within the Balanced fund less risk environment (but still too high cost) options.
‘Properly transformed’ caught with about 5% in Naspers …
Like Coronation with Steinhoff … ??

Which of the other managers had low Naspers exposure when it mattered? PSG Balanced, Investec opportunity fund, ?
And ….?
Which also have lowest cost among competitors at same time …
Moneyweb: Which % of lost yield on JSE since 1994 was due to ‘BBBEE’ effective handouts and share dilution to Ramas and Sexwa and … and …. Hidden cost….. EWC (carefully hidden elegantky packed nationalisation moving unearned wealth to cronies and ‘nominated ANCs ‘in trust?’.
Any transformed fund manager speaking up on behalf of suffering pensioners and retirement saver ..
O sorry – not PC enough for them or ‘formal journalists’ … fake and unreliable selective news really elsewhere only?
Who is right about EWC and farm murders? Fox news or Ramaphoria dining with big business in USA …
At least Moneyweb did not have a Ramaphoria (outdated) co-travelling praise singer at our cost (?) in USA like News24 and Netwerk24 and their rediculous editor in TV after that blatant Rama lying incident….
…. Fake equivalent / PC example: .. ‘He should just have expressed himself better’ …. when denying realistic Trump concerns.
Would not bank on Trump … but scrapping AGOA for misbehaving – falling economic freedom below Russia ask AA victims ….- fit quite well with America first – no handout to corrupts elsewhere …

Two points: Agreed, you can’t make money with the SATRIX top 40,rather go for their MSCI, S&P 500 or NASDAQ 100. In the “early” days we where hyped with the Top 40 with NASPERS and MTN sparkling……thus changed and will keep on changing which bring me to my second point… (Naspers) can’t make money indefinitely ” selling ” games ( Tencent ) 😉

I note with disappointment when Moneyweb delays (‘refuse’ hoping it will go away ?)
when it is not only comment on investing but also criticism (with civilised language … ) against one sided ‘PC’ approach in media and effectively ignoring BBEEE effects on lost JSE yield due to share dilution etc ….
Maybe you can ask Magnus H to have a look and comment ….

Just another example of the joke that is asset management.

The concept that it helps with the efficient allocation of capital is only right when a company IPO’s – and even then you only have to look at recent listings and RO’s to see how badly that can go.

About time that asset management is re-confined to the windowless offices of a handful of life companies and all those clever CAs and CPAs get real jobs in business and industry that actually help the economy grow.

What a silly comment. How can the asset management industry be blamed because earnings of a large company like Tencent is falling? Would you really prefer your retirement savings to be handled by the life companies???

I didn’t blame you. Quite the contrary: you have nothing to do with any of the real business of business.

And yes, there was nothing wrong with pensions when they were management by asset managers in life companies. But without the excessive remuneration of the industry that now exists.


This is nothing compared to Steinhoffs of Stellenbush

This share is kept alive by Assett managers in SA and by the Chinese government who allow for Monopolies until they are forced by normal market conditions to allow competition. Sadly the realities of this share would destroy the JSE if the truth was to come out. Finally the sooner BEE policies are scrapped the sooner SA can get on with being the fair and ethical economy we all hoped for. This is only my opinion.

End of comments.





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