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Tencent’s record rally can’t lift Hang Seng out of doldrums

Correlation between Tencent and Hang Seng Index nears five-year low.
Image: Bloomberg

One of Hong Kong’s biggest stocks and its benchmark index are telling two different stories. While Tencent Holdings Ltd. rallied to a fresh record high this week, the Hang Seng Index remained sluggish.

The correlation between the Hang Seng Index and one of its heaviest-weighted stocks is approaching a five-year low, underscoring the contrast between the tech giant’s 61% rally this year and the benchmark’s disappointing 13% plunge.

Massive southbound inflows and the potential revaluation of fintech businesses as investors await Ant Group Co’s listing spurred a rally in Tencent this week through Thursday. Its shares gained nearly 8% in the period, surpassing HK$600 and adding $53 billion to the company’s market value — more than eight times the value of fellow index member AAC Technologies Holdings Inc. Tencent fluctuated between gains and losses in early Friday trade.

Mainland investors have piled into Tencent ahead of the scheduled November 12 release of third-quarter results. Its Hong Kong shares have recorded net southbound buying for three consecutive days this week, with inflows topping HK$11 billion, according to exchange data. Tencent is expected to report a 46% increase in net income, up from 37% in the previous quarter, according to consensus estimates on Bloomberg.

Brokerages believe Ant Group’s raised valuation at $315 billion has boosted Tencent’s recent performance. As two major competitors in China’s mobile payment market, Ant’s listing is likely to trigger a revaluation of WeChat Pay, Tencent’s flagship mobile payment platform.

Tencent is “more profitable in payments than Ant” and is “strategically more comfortable” in ramping up its payment operations, Macquarie analyst Han Joon Kim wrote in a note dated Tuesday. WeChat Pay could be worth as much as $346 billion by 2022, said Kim, who boosted Tencent’s stock target to HK$815, the most bullish among all analyst ratings tracked by Bloomberg.

© 2020 Bloomberg

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