Is Tencent facing new headwinds?

• Tencent Holdings Limited (HK: 0700) share price sheds 4.2% to HK$615.50 per share
• The gaming heavyweight might be hit by selling pressure when the benchmark index revamps
• China is encouraging tech giants to release key data
• Analysts on average believe Tencent’s stock could rally to HK$808.38
• Trade Tencent shares, long or short, with an IG account

Tencent stock retreats again

Shares of Tencent, which runs China’s ubiquitous messaging service WeChat, fell another 4.2% to trade at HK$615.50 by 09:49 SGT on Tuesday (09 March), extending their slide since last week.

The stock has lost about 15% from HK$723 last Wednesday (03 March), although it is still up 9.1% year-to-date.

Despite the recent sell-off, Tencent continues to trade above historical average valuations, said Bloomberg Intelligence analysts on Monday.

They added: ‘Tencent’s resilient valuation suggests the market may be focusing on the strong online game business performance and shrugging off the recent increase in antitrust scrutiny by the Chinese regulator.’

Aside from WeChat, the tech powerhouse also has a solid foothold in gaming, fintech, music, video, live-streaming, and more.

As of Monday night, 59 analysts had ‘buy’ ratings on Tencent shares, four recommended ‘hold’, and only one said to ‘sell’. Their average target price was HK$808.38, according to Bloomberg data.

Four research teams - HSBC, Macquarie, China Merchants Securities, and Zhongtai International - on Monday issued bullish calls with target prices of HK$854, HK$849, HK$829 and HK$727 respectively.

Hang Seng Index overhaul

Tencent could be one of the heavyweight counters hit by selling pressure amid a major revamp of Hong Kong’s stock market benchmark Hang Seng Index (HSI).

Changes to HSI will include increasing the number of its constituents to 80, capping each stock’s weighting at 8%, and shortening the listing history requirement to three months. Implementation will take place from May 2021 till mid-2022.

In response to the new weighting limit, passive funds could make redemptions on stocks that currently have a bigger presence on the index, such as Tencent, HSBC and AIA Group, said CIMB and Everbright Sun Hung Kai.

Moreover, the new listing-history requirement may mean HSI could include newly listed companies such as JD Health International and Kuaishou Technology more quickly than before. This will open up the index to more Chinese technology players and potentially pressure Tencent, wrote Pegasus Fund Managers’ managing director Paul Pong.

Will data-sharing hurt Tencent?

China released its latest five-year targets last Friday, calling on Tencent, Alibaba Group and other tech behemoths to share key data in areas including search, e-commerce and social media, so as to help sharing and online economies develop.

If Tencent shares its proprietary information, that could threaten its market-leading position and make it harder for the internet giant to compete with smaller players, Bloomberg reported.

Chinese Premier Li Keqiang also said on Friday that China will step up oversight of fintech and financial holding companies.

How to trade Tencent stocks with IG

Are you feeling bullish or bearish on Tencent's stocks?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform, or by investing in the share directly, in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <Tencent Holdings> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade