HONG KONG • Shares in Tencent Holdings slumped yesterday after a world-beating surge in the counter pushed its market value to the cusp of US$1 trillion (S$1.3 trillion) for the first time.

The Chinese Internet behemoth lost as much as 5.5 per cent in Hong Kong trading, putting its market capitalisation at below US$900 billion. Traders took profit after Monday's 11 per cent surge, which was Tencent's biggest in almost a decade.

Adding caution were comments from an adviser to China's central bank to local media indicating that excessive liquidity and ultra-low borrowing costs were creating bubbles in the stock market.

The prospect that China will tighten funding conditions threatens to derail Tencent's stock rally, which has been underpinned by a relentless flow of capital from the mainland.

Onshore funds purchased a record amount of Hong Kong shares this month, with about a quarter of that targeting Tencent.

With more than a billion users on its WeChat social media platform, Tencent is ubiquitous to Chinese investors who have no access to Hong Kong shares of rival Alibaba Group Holding through the stock links.

Tencent was the most recent mega-cap company to benefit from investor enthusiasm for the tech sector, with its looming milestone a marker for the euphoria sweeping the stocks globally.

Before yesterday, the tech stock had added US$251 billion this month alone - by far the biggest creation of shareholder wealth worldwide.

Meanwhile, warnings are rising that easy monetary policy is fuelling bubbles in global equities, especially in the United States, where gains have been led by the Nasdaq.

As investors seek cheaper alternatives, they have been piling into Hong Kong equities. That has helped make the Hang Seng China Enterprises Index the best performing among the world's major benchmarks in the past month.

While Tencent has long been an investor favourite in Asia, returning over 100,000 per cent since its 2004 initial public offering, there are other risks to the rally.

In 2018, a government crackdown on China's online gaming industry squeezed Tencent's most profitable business, which at the time accounted for about 40 per cent of its revenue. Coupled with a slowing Chinese economy and a weakening yuan, Beijing's nine-month halt on approvals for new games contributed to a 22 per cent slump in the shares.

A campaign against monopolistic practices since late last year has targeted many of the industries in which Tencent and its rival Alibaba operate, including the online payments industry.

But while increasing regulatory risk has left Alibaba's shares about 16 per cent lower than their October peak, Tencent has closed at seven fresh records in the past eight sessions. One factor contributing to the divergence: Alibaba's Hong Kong stock is not included in trading links with mainland exchanges.

Tencent would be the second Chinese firm to join the trillion-dollar club after PetroChina, which was briefly worth more than that in late 2007 before collapsing in value. US tech giants Apple, Amazon.com, Alphabet and Microsoft are also worth more than US$1 trillion each, as is Saudi Arabian Oil.

Tencent was founded in 1998 by four college classmates and a friend from Shenzhen who devised a Chinese version of instant messaging service ICQ. Led by "Pony" Ma Huateng, the company's chat software became the primary communication tool for a generation of young Chinese.

Still, Tencent's surge has outpaced all but the most bullish analysts' forecasts. The stock's closing level of HK$766.50 on Monday was almost 10 per cent higher than the consensus 12-month price target compiled by Bloomberg, the widest gap since 2014.

BLOOMBERG