Tencent exits US$500b ‘elite’ tech club as Hang Seng trims its index weighting

Games giant loses US$55 billion in value in less than two weeks, after shares fall 7.41 per cent this week

PUBLISHED : Friday, 01 December, 2017, 7:27pm
UPDATED : Friday, 01 December, 2017, 10:05pm

Tencent shares fell another 2.61 per cent on Friday making their weekly loss 7.41 per cent – the biggest decline in 21 months, after having rallied by as much as 132 per cent since the start of this year.

As part of a quarterly rebalancing, the stock’s weighting on Hong Kong’s benchmark Hang Seng Index will also be cut by 1.58 per cent, the Hang Seng Indexes Company announced on Friday.

China’s largest games producer and social network operator has now lost US$55 billion in value in less than two weeks, as a sell-off picked up pace after its share price smashed through the HK$400 level last month.

On Friday, the stock slipped to HK$387.60 to give Tencent a market capitalisation of about US$468 billion compared with its peak of US$523 billion on November 21.

As part of the Index Company’s quarterly rebalancing, the stock’s constituent weighting on the Hang Seng Index will fall to 10 per cent from 11.58 per cent, taking effect Monday.

Tencent was the first Asian company to have topped US$500 billion in value for a period last month, joining a pretty elite global tech group valued at over that amount, which includes US giants Apple, Alphabet, Facebook and Microsoft.

Tech turmoil dumps Tencent out of US$500 billion club

Technology stocks globally have seen sharp falls in recent days as traders bail out of the sector on concerns that this year’s gain of as much as 70 per cent may have been too rapid

MSCI’s global gauge of technology shares has also slumped 1.8 per cent this week.

Many passive index funds and ETFs track the Hang Seng Index and may be forced to cut their portfolio allocation to Tencent as per the weighting adjustment.

“Tencent’s fundamentals haven’t changed but there is huge selling pressure on the last trading day before the new Hang Seng Index composition becomes effective,” said Louis Wong Wai-kit, director of Phillip Capital Management.

Morgan Stanley, however, said it expected Tencent’s shares to remain volatile in the short term but that the correction provides an opportunity for long-term investors to accumulate the stock, setting a target price at HK$480, with an overweight investment rating.

Tencent is first Asian company to top US$500 billion in value

As a result of the controlled monetisation pace, Tencent’s short-term earnings potential is not fully realised, Morgan Stanley said in a report, which makes price earning multiples appear high.

Among other adjustments to the composition of the Hong Kong’s main index, Cathay Pacific Airways and Kunlun Energy will be dropped from the benchmark, when the rebalancing takes effect.

Chinese property developer Country Garden Holdings and China’s largest manufacturer of smartphone camera modules and lenses, Sunny Optical Technology, will take their places.

Meanwhile, industry media reported that Tencent confirmed on Friday that it will launch PlayerUnknown’s Battlegrounds later in the mainland, and that the new mobile game has already received more than 260,000 pre-subscriptions.