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Hong Kong stock traders can’t get enough of Tencent Holdings Ltd., the $ 930 billion giant that is on track for its biggest monthly gain.
They are paying for bullish derivatives that track the Chinese internet company, buying thousands of January call options that expire Thursday. The price of a Tencent contract – which bets the stock will rise beyond HK $ 800 upon expiration – climbed 90,300% on Monday. Traders also rushed to offload their bearish puts, with one of the most traded contracts losing around 84% in value.
The stock rose 10% on Monday to HK $ 760, which is about two-fifths of the Hang Seng index’s gains. The Hong Kong benchmark rose 2.1% and is expected to close above the key 30,000 point level for the first time since May 2019.
Tencent has become a prime target for mainland traders who are flooding record amounts of money in Hong Kong-listed shares this year, the net purchase of the stock accounting for about a quarter of the total incoming money, according to exchange data. The buying frenzy also increased Tencent’s market value by about $ 232 billion this year, the most global, according to data compiled by Bloomberg. Tesla Inc. is the second-biggest winner, up $ 134 billion.
Shares of Tencent are now trading at nearly 39 times analysts’ estimated earnings for the next 12 months. While this is well above the average of 30 since Bloomberg started tracking data in 2005, it remains below the recent multiple of 42 reached in 2014 and 2018. It reached 65 at the height of the bubble Chinese scholarship in 2007.
On Monday, analysts at Citigroup Inc. raised the company’s target price by 19% to HK $ 876, the highest among analysts tracked by Bloomberg, citing the company’s expanding market share and growth in the games industry and others digital businesses.
Tencent is also getting an extra boost by participating in the city’s growing initial public offering market. Kuaishou Technology, supported by Tencent, is seeking to raise up to $ 5.4 billion in Hong Kong in what would be the largest Internet IPO since Uber Technologies Inc.
With the recent surge, Tencent is trading at its highest price on record. This largely avoided the tightening of regulatory oversight that sparked a massive sell-off of rival Alibaba Group Holding Ltd. and forced its subsidiary Ant Group Co.
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