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China’s Tencent Holdings Loses its Title as China’s Biggest Company

Barchart - Fri Sep 30, 2022

Tencent Holdings Ltd has lost the crown as China’s largest company as its market value has fallen below liquor-giant Kweichow Moutai.  Shares of Tencent Holdings have plunged -64% since posting a record high in January 2021, wiping $623 billion off its market value.  That is the biggest decline in the market value of any company in the world.

The sharp fall in Tencent Holdings was caused by concern about the company’s outlook after China’s year-long regulatory crackdown.  In early 2021, Tencent was on the verge of becoming Asia’s second trillion-dollar company. However, the plunge in the stock over the past year has the company valued at $5.4 billion less than Kweichow Moutai.

According to KGI Asia Ltd, the outlook over the near term for Tencent Holdings is not promising as “there are no positive catalysts for the company in the second half of this year since its earnings will continue to be under pressure from the weak macro environment.”  Also, a broader selloff in global equity markets weighs on any recovery in the company’s shares.

Tencent Holdings faces many challenges to recovery.  Approvals from Chinese regulators for new online games are very slow to happen. Also, limits on playing time for minors have continued to affect the company’s bottom line.  In addition, China’s strict Covid Zero policy and sporadic lockdowns have dampened economic growth and curbed advertising revenues.

Morgan Stanley said active long-only funds have been liquidating their holdings of Tencent as funds sold about $30 billion worth of the company’s stock this year through September 20, the most of any firm in its peers.  Last month, Morgan Stanley lowered its earnings estimates for Tencent, saying lower gaming growth and ”limited visibility” on an advertising recovery could weigh on top-line growth in Q3.  In addition, China Vision Capital said that even though Tencent is cheaply valued, “none of its monetization methods have proved to be meaningful revenue drivers,” and the prospects for future profitability look limited.



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