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(Bloomberg) – Tencent Holdings Ltd. fell on Tuesday, after a global surge in the stock pushed its stock market value to the edge of $ 1 trillion for the first time.
The Chinese Internet giant lost 2.8% in pre-market commerce in Hong Kong. Shares jumped 11% on Monday, Tencent’s best gain since 2011 and bringing its capitalization to nearly $ 950 billion. There were few obvious catalysts for a rally of this size, although traders cited an ambitious listing plan from video startup Kuaishou Technology, in which Tencent has a stake, as well as an optimistic note from analysts at Citigroup. Inc. The options market was unleashed, with one contract expiring on Thursday skyrocketing 118,300%.
Tencent was the most recent mega-cap to benefit from investor enthusiasm for the tech sector, with its impending milestone a marker of euphoria sweeping stocks globally. By Tuesday, the stock had added $ 251 billion in January alone – by far the biggest creation of shareholder wealth in the world. Warnings are mounting that easy monetary policy is fueling bubbles in global equities, particularly in the United States, where the gains were led by the Nasdaq.
As investors search for cheaper alternatives, they have piled on Hong Kong stocks. This helped make the Hang Seng China Enterprises Index the best performing among major global benchmarks over the past month. Record inflows by mainland Chinese investors into the city’s stocks fueled the rally. Tencent, whose social media platform WeChat has more than one billion users, is the primary target, accounting for about a quarter of total cash from stock links.
“Inventories are exceeding,” said Jackson Wong, director of asset management at Amber Hill Capital Ltd. “Obviously, this is due to liquidity. Beijing wants to attract money to Hong Kong and encourages many new ETFs and mutual funds to buy the city’s stocks.
While Tencent has long been a favorite with investors in Asia, yielding over 100,000% since its IPO in 2004, the stock is not without risk.
In 2018, a government crackdown on China’s online gaming industry weighed on Tencent’s top-grossing business, which at the time accounted for around 40% of its revenue. Coupled with the slowdown in the Chinese economy and the weaker yuan, Beijing’s nine-month shutdown on new game approvals contributed to a 22% drop in stocks.
A campaign against monopoly practices since late last year has targeted many industries in which Tencent and its rival Alibaba Group Holding Ltd. operate, including the online payments sector. But while increased regulatory risk left Alibaba shares about 16% below their October high, Tencent closed at seven new records in the past eight sessions. One factor contributing to the divergence: Alibaba’s stock in Hong Kong is not included in trade ties with mainland stock exchanges.
Tencent would be the second Chinese company to join the trillion dollar club after PetroChina Co., which was briefly worth more than that in late 2007 before collapsing. US tech giants Apple Inc., Amazon.com Inc., Alphabet Inc. and Microsoft Corp. are also worth over $ 1 trillion each, as is Saudi Arabian Oil Co.
Tencent was founded in 1998 by four college classmates and a friend from Shenzhen who designed 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 primary communication tool for a generation of young Chinese.
Tencent reported net profit of 38.5 billion yuan ($ 5.9 billion) in the three months ended September, boosted by a gain of 11.6 billion yuan resulting from higher valuations of its investments in other societies. The rally in tech stocks is expected to boost earnings further, given its ownership of some of the biggest players in the industry, from JD.com Inc. and Meituan to electric vehicle maker NIO Inc.
Still, Tencent’s push has exceeded all expectations of the most optimistic analysts. The stock’s closing level of HK $ 766.50 on Monday was nearly 10% higher than the 12-month consensus price target set by Bloomberg, the largest spread since 2014.
(Add Tuesday trading throughout)
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