Can Tencent overcome latest sell-offs?

• Tencent Holdings (HKG: 0700) share price stays weakened, amid concerns of a crackdown by Chinese regulators
• Last Friday (12 March 2021), the internet giant’s stock fell 4.4% after it was fined by China’s top antitrust regulator for a 2018 investment deal
• Shares are still trading at a three-month low price of HK$624 on Wednesday (17 March)
• Trade Tencent shares with an IG account

Tencent share price: what's the latest?

Tencent Holding shares remain down on Wednesday (17 March 2021), amid concerns that the group will become Chinese authorities’ next target in a crackdown on the country’s biggest technology companies.

Tencent’s stock fell over 4% on Monday, following a 4.4% drop last Friday spurred by a fine by China’s top antitrust regulator.

Last week, a total of 12 companies – including Tencent, Alibaba, Baidu, ByteDance, Meituan and JD.com – were each fined 500,000 yuan (US$77,000) by the State Administration for Market Regulation for ten internet investment deals that were found to have breached China’s anti-monopoly law.

Tencent’s 2018 investment in educational technology firm Yuanfudao were among the deals named.

China’s anti-monopoly law states that firms must report deals that could potentially create a ‘market-dominant player’, or one holding a more than 50% share of its market.

In December 2020, Tencent’s ebook spinoff China Literature was fined the same amount, after failing to report past acquisition deals.

As at 13:45 HKT, Tencent shares are trading at a three-month low of HK$624. The stock is still up 9% year to date.

Is Tencent the next target of financial regulators?

Although the fines are nothing compared to the market capitalisation of the companies, market observers believe they could be the start of much tighter scrutiny.

According to people close to China's top financial regulators, Tencent is being pointed out as the next most likely target for increased supervision, following Jack Ma's Ant Group, Bloomberg reported.

Similar to Ant Group, Tencent will probably be made to set up a financial holding company for its banking, insurance and payments businesses.

Following last week’s fine, Tencent said it will ‘continue to adapt to changes in the regulatory environment’, which it views as ‘beneficial to the industry, and will seek to ensure full compliance’. However, it did not comment on financial regulatory matters.

This latest decline has already erased the internet giant’s market cap by some US$62 billion, equivalent to over half the value of its online finance business.

Tencent’s payments and fintech business is estimated to be worth between US$105 billion and US$120 billion, according to Bernstein data.

The payments business alone is said to be worth roughly US$70 billion to US$80 billion. The credit, wealth management and insurance arms make up the remaining US$35 billion to US$40 billion.

Tencent’s fintech business posted a revenue of about 84 billion yuan (US$13 billion) in 2019, which constituted 22% of the company’s total sales – the second largest segment after online entertainment.

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