(Bloomberg) – Tencent Holdings Ltd. fell after a world-beating rise in the stock pushed its market value to $ 1 trillion for the first time.
The Chinese internet cattle lost 5.5% in Hong Kong on Tuesday, bringing its market capitalization below $ 900 billion. Traders made a profit after the 11% surge on Monday, which was Tencent’s largest in almost a decade. Caution was given by commenters by a Chinese central bank adviser to local media suggesting excessive liquidity and ultra-low borrowing costs were creating bubbles in the stock market.
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The prospect of China tightening funding conditions threatens to derail Tencent’s share price, backed by a relentless flow of capital from the mainland. Onshore funds bought a record amount of Hong Kong shares this month, with about a quarter of that targeted at Tencent. With more than a billion people using the WeChat social media platform, Tencent is ubiquitous for Chinese investors who have no access to Hong Kong shares of rival Alibaba Group Holding Ltd. do not have.
Tencent was the most recent mega-cap company to take advantage of investors’ enthusiasm for the tech sector, with its looming milestone an indication of the euphoria that the stock is spreading worldwide. Before Tuesday, the stock alone added $ 251 billion in January – by far the largest shareholder wealth creation worldwide. Warnings are mounting that easy monetary policy is driving bubbles in world equities, particularly in the US, where the Nasdaq gains led.
As investors look for cheaper alternatives, they are preparing stocks in Hong Kong. This helped make the Hang Seng China Enterprises Index the world’s most important benchmark for the best month.
Tencent has long been a favorite with investors in Asia, yielding more than 100,000% since its initial public offering in 2004, but there are other risks to the rally.
In 2018, Tencent’s most lucrative business, which at the time accounted for about 40% of its revenue, pushed a government repression against China’s online gaming industry. Along with a slowdown in the Chinese economy and a weakening yuan, Beijing’s nine-month hiatus with the approval of new games contributed to a 22% drop in shares.
A campaign against monopolistic practices since the end of last year has targeted many of the industries in which Tencent and rival Alibaba operate, including the online payments industry. Although the increasing regulatory risk has left Alibaba’s shares about 16% lower than their October peak, Tencent has closed on seven new records over the past eight sessions. One factor contributing to the deviation: Alibaba’s share in Hong Kong is not included in the trade ties with the mainland stock exchange.
Tencent would be the second Chinese company to join the trillion-dollar club after PetroChina Co., which was worth more than the value at the end of 2007 before collapsing. US tech giants Apple Inc., Amazon.com Inc., Alphabet Inc. and Microsoft Corp. is also worth more than $ 1 trillion each, as well as Saudi Arabian Oil Co.
Tencent was founded in 1998 by four colleagues and a friend from Shenzhen who devised a Chinese version of the instant messaging service ICQ. Led by ‘Pony’ Ma Huateng – mother is Chinese for ‘horse’ – the company’s chat software has become the primary communication tool for a generation of young Chinese.
However, Tencent’s performance rose better than analysts’ forecasts, except for the strongest. The stock closed at HK $ 766.50 on Monday, almost 10% higher than the 12-month consensus price target set by Bloomberg, the largest gap since 2014.
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