Tencent Is Suffering a One-Two Punch From the Tech Stock Sell-Off

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Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.__________Tencent is exposed to a double dose of pain as a global tech rout gathers pace.On Wednesday, United States technology stocks fell sharply. But even against that backdrop and a similar plight afflicting Chinese rivals, the Hong Kong-listed gaming giant Tencent stands apart. It has lost $230 billion of market value from its peak in January, which is magnified by fickle Chinese traders and its exposure to emerging markets.Investors have wiped out about 40 percent of the tech titan’s market value so far this year: it is now worth $348 billion. That compares to the less than 30 percent declines suffered by its U.S.-listed Chinese rivals Alibaba and Baidu over the same period. Slowing earnings growth and an unforeseen regulatory crackdown on mobile games, Tencent’s core business, by the Chinese government triggered the slump. But it has since snowballed amid escalating U.S.-China trade tensions and concerns of a slowing economy in the People’s Republic.Tencent’s listing location is one reason it is getting hit harder than other tech companies. Analysts at BNP Paribas believe that it’s currently the top-selling name on the Stock Connect scheme linking mainland exchanges to Hong Kong, which allows investors in China to trade the company’s shares. That means Tencent is exposed to flighty Chinese investors, who tend to be quicker than most to buy and sell, making the good times richer — and the bad times poorer.A capital flight is also playing a part. Tencent is the top company in the MSCI Emerging Markets Index, with a 4.5 percent weighting. The index has slumped 14 percent this year, largely because of outflows from riskier markets as the U.S. Federal Reserve has tightened monetary policy. By contrast, Alibaba’s weighting in the index is 3.7 percent and Baidu’s only 1.2 percent.Tencent has responded to its decline with share buybacks. The company has been stepping up repurchases, spending $100 million since September, according to filings. But the amount it has bought — just 0.03 percent of its shares outstanding — is too small to make a real difference. Tencent shares still trade at almost 26 times forward earnings, according to Refinitiv data, but the premium is narrowing to its top rival Alibaba at 23 times.If that closes, Tencent will have one more thing to worry about. Robyn Mak is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
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