Tencent is world's worst stock bet with $231 billion wipe-out

Tencent's shares rebounded by 7.1 per cent on July 29.
Tencent's shares rebounded by 7.1 per cent on July 29.PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - China's unprecedented crackdown on its technology industry has turned Tencent Holdings from a market darling into the world's biggest stock loser this month.

The Chinese Internet giant had tumbled 23 per cent this month as at Wednesday (July 28), set for its worst month ever after erasing about US$170 billion (S$230.6 billion) of market value. That marks the fastest evaporation of shareholder wealth worldwide during this period, Bloomberg data shows.

Nine of the top 10 losers in shareholder value this month are Chinese companies, including Meituan and Alibaba Group Holding.

Tencent's shares rebounded by 7.1 per cent on Thursday morning, tracking broader gains in Chinese stocks after Beijing intensified efforts to alleviate concerns about its crackdown on the private education industry.

The Shenzhen-based firm is one of the key casualties of an official campaign that targets some of the nation's tech behemoths considered posing a potential threat to China's data security and financial stability.

The sell-off in its shares intensified earlier this week after Beijing broadened the regulatory clampdown to include other once high-flying industries such as private education.

"I don't see an end to the regulatory crackdown. Data security is a top priority to policy makers in the coming years. It's a new normal," said Pegasus Fund Managers managing director Paul Pong. "Valuations will have to be adjusted to cope with that, especially for technology giants like Tencent."

The regulatory storm has resulted in penalties such as the loss of exclusive music streaming rights and antitrust fines for Tencent. This week, the company said it was also suspending new user registration for its popular WeChat services and was ordered to fix mobile app-related issues.

Despite concerns about further punitive measures from regulators, the company's stock is starting to look cheap and most analysts have refrained from cutting their price targets: Among the 68 analysts who have a rating on Tencent, 62 still recommend the stock as a "buy".

The average target price among analysts is HK$736.30, representing a 65 per cent premium over Wednesday's close of HK$447.20, Bloomberg data shows.

At HK$447.20, the stock was trading at 22.5 times forward earnings, well below its historical average of 30 times. It also has fallen to the most oversold level in more than six years.

"Tencent trading below HK$500 is attractive, but the upcoming earnings will be a key thing to watch," said Mr Pong, adding that if the firm can achieve 20 per cent to 30 per cent growth, its shares could enjoy a solid rebound. "Because that would show they can still maintain good profitability in this tough environment."