Tencent leads decline in Asian internet stocks

PUBLISHED : Friday, 28 March, 2014, 1:40am
UPDATED : Friday, 28 March, 2014, 1:40am

Tencent Holdings tumbled the most in seven weeks, leading declines in Asian internet companies amid growing concern that valuations in the industry are overstretched.

Tencent slid 5.9 per cent to HK$521.50 at the close in Hong Kong, extending a drop since March 6 to 18 per cent after the stock's price-earnings ratio reached the highest in almost six years. Naver Corp lost 3 per cent in Seoul, while People.cn fell 6.6 per cent in Shanghai. SoftBank, which owns a stake in Alibaba Group, slipped 1.7 per cent.

Technology companies have led gains in Asian shares during the past 12 months on speculation growing demand for social networking, e-commerce and online games will boost earnings and fuel takeovers in the industry.

Concern that the rally has gone too far and that companies may be overpaying for acquisitions is building after King Digital Entertainment, the maker of the Candy Crush smartphone game, tumbled 16 per cent in its New York trading debut yesterday.

"The earnings growth of internet companies and media companies has been quite strong, but obviously everyone knows that their valuations have become expensive," said Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management.

"One should expect some profit-taking from the sector. That's what we're seeing."

The MSCI Asia Pacific Index was little changed in the same period. The internet gauge is valued at 28 times estimated earnings for the current fiscal year, more than twice as expensive as the broader regional index and near the biggest premium since 2006, according to data compiled by Bloomberg.

"The internet names were already pulling back on concern about their high valuations and that process was given more fuel overnight when King dropped below its IPO price," said You Na, a senior research analyst at ICBC International Research in Hong Kong. "The feedback from US investors seems to be that they are concerned and very cautious."

King Digital had the steepest decline of a newly listed US firm in more than four months yesterday even after it priced shares at a discount to its major peers.