Tencent Holdings Ltd. fell Tuesday, after a world-beating surge in the stock pushed its market value to the cusp of $1 trillion for the first time.<\/p>\n
The Chinese Internet behemoth lost as much as 5.1% in Hong Kong, its biggest decline in a month, putting its market capitalization at $900 billion. Its shares surged 11% Monday, Tencent\u2019s best gain since 2011. There were few obvious catalysts for a rally of that size, although traders cited an ambitious listing plan from video startup Kuaishou Technology, in which Tencent holds a stake, as well as a bullish note from Citigroup Inc. analysts. The options market went wild, with one contract expiring Thursday soaring 118,300%.<\/p>\n
Tencent was the most recent mega-cap company to benefit from investor enthusiasm for the tech sector, with its looming milestone a marker for the euphoria sweeping the stocks globally. Before Tuesday, the stock had added $251 billion in January alone — by far the biggest creation of shareholder wealth worldwide. Warnings are rising that easy monetary policy is fueling bubbles in global equities, especially in the U.S., where gains have been led by the Nasdaq.<\/p>\n
As investors seek cheaper alternatives, they\u2019ve piled into Hong Kong equities. That\u2019s helped make the Hang Seng China Enterprises Index the best performing among the world\u2019s major benchmarks in the past month. Adding fuel to the rally has been record inflows by mainland Chinese investors into the city\u2019s equities. Tencent, whose WeChat social-media platform boasts more than a billion users, is the prime target, accounting for about a quarter of total cash coming in through the stock links.<\/p>\n
\u201cStocks are overshooting,\u201d said Jackson Wong, asset management director at Amber Hill Capital Ltd. \u201cObviously this has been driven by liquidity. Beijing wants to drive money into Hong Kong, and it\u2019s encouraging lots of new ETFs and mutual funds to buy the city\u2019s stocks.\u201d<\/p>\n
On Tuesday, 10-year government bonds slumped to fall by the most in four months after China\u2019s central bank drained funds from the system, raising concerns about how much further Hong Kong\u2019s stocks could rally given tightening liquidity.<\/p>\n
While Tencent has long been an investor favorite in Asia, returning more than 100,000% since its 2004 initial public offering, the stock is not without risk.<\/p>\n
In 2018, a government crackdown on China\u2019s online gaming industry squeezed Tencent\u2019s most profitable business, which at the time accounted for about 40% of its revenue. Coupled with a slowing Chinese economy and a weakening yuan, Beijing\u2019s nine-month halt on approvals for new games contributed to a 22% slump in the shares.<\/p>\n
A campaign against monopolistic practices since late last year has targeted many of the industries in which Tencent and rival Alibaba Group Holding Ltd. operate, including the online payments industry. But while increasing regulatory risk has left Alibaba\u2019s shares about 16% lower than their October peak, Tencent has closed at seven fresh records in the past eight sessions. One factor contributing to the divergence: Alibaba\u2019s Hong Kong stock is not included in trading links with mainland exchanges.<\/p>\n
Tencent would be the second Chinese firm to join the trillion-dollar club after PetroChina Co., which was briefly worth more than that in late 2007 before collapsing in value. U.S. tech giants Apple Inc., Amazon.com Inc., Alphabet Inc. and Microsoft Corp. are also worth more than $1 trillion each, as is Saudi Arabian Oil Co.<\/p>\n
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| Done With Day Trading, China\u2019s Stock Investors Turn to Funds<\/td>\n<\/tr>\n |
| Some $63 Billion Richer, Alibaba Investors React to Ma\u2019s Video<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Tencent was founded in 1998 by four college classmates and a friend from Shenzhen who devised a Chinese version of the instant messaging service ICQ. Led by \u201cPony\u201d Ma Huateng — ma is Chinese for \u201chorse\u201d — the company\u2019s chat software became the primary communication tool for a generation of young Chinese.<\/p>\n Tencent reported net income of 38.5 billion yuan ($5.9 billion) in the three months ended September, boosted by a gain of 11.6 billion yuan from rising valuations for its investments in other companies. The rally in tech shares is likely to lift its earnings further, given its ownership of some of the industry\u2019s largest players from JD.com Inc. and Meituan to electric vehicle maker NIO Inc.<\/p>\n Still, Tencent\u2019s surge has outpaced all but the most bullish analysts\u2019 forecasts. The stock\u2019s closing level of HK$766.50 on Monday was almost 10% higher than the consensus 12-month price target compiled by Bloomberg, the widest gap since 2014.<\/p>\n |