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The
move followed U.S. President Donald Trump's announcement of a
sweeping ban on U.S. transactions with Tencent Holdings
<0700.HK>, the Chinese owner of messaging app WeChat, and
Bytedance, which owns the video-sharing app TikTok, citing
national security threats.
Tencent now only represents 10% of his portfolio, having
accounted for 40% at the peak of his purchases in the company
which began some five years ago. E-commerce giant Alibaba Group
Holding <BABA.N> now represents 5% of his holdings.
"I was envisioning a global Tencent, a global Alibaba. Now, I
can only think of Southeast Asian versions," said Zhu, who has
several million yuan in overseas-listed Chinese companies.
"The room for imagination evaporates. Valuation should be cut by
one third."
Like other investors, he worries that Washington's move to
restrict mainland technology companies could curb their growth
potential.
That concern drove shares of Tencent and Alibaba down some 5%
each on Friday, but they were still up roughly 39% and 17%
respectively so far this year after Friday's losses.
Under Trump's executive order, any transaction related to WeChat
and TikTok would be banned in the United States.
The Trump administration last week also announced the expansion
of the "Clean Network" initiative which aims to prevent various
Chinese apps and telecom firms from accessing sensitive
information on American citizens and businesses, targeting firms
like Tencent, Alibaba and Huawei [HWT.UL].
The latest blow comes as the relationship between the two
powerhouses has nosedived since the outbreak of the coronavirus
pandemic.
"Fundamentally, it's not a big shock to the earnings. But right
now, I think the market is still trying to digest this
information because of the political backdrop," said Paul Sandhu,
Asia Pacific head of multi-assets quant solutions at BNP Paribas
Asset Management.
"There's a lot of ambiguity concerning the so called 'Clean
Network'," he said, forecasting more market volatility ahead.
DOWNSIDE RISKS
Brokerage CLSA said the fall in Tencent and Alibaba shares
represented a buying opportunity, expecting the U.S. ban to only
have a small impact because the U.S. only contributes less than
3% to each firm's overall revenue.
But Morgan Stanley said there was "significantly amplified"
downside risk to Chinese internet gaming companies if the U.S.
ban expands to cover more businesses, or prohibits investment in
the United States by Chinese tech firms.
"Globalisation is one of the key growth drivers for China
internet stocks as user growth decelerates and competition
intensifies in China," Morgan Stanley wrote.
Tencent, which derives more than a third of its revenues from
gaming, has invested in a number of overseas video game studios
such as Riot Games and Supercell, and has also partnered with
many Western gaming firms in China and Asia.
A fund manager based in Shanghai, who owns Tencent shares, also
said the sanctions cast a shadow over share trading.
"If we see the U.S. take actions against China from time to
time, I think share price volatility in Chinese tech companies
will continue," he said on condition of anonymity.
He expected the future growth of Tencent to be mainly driven by
domestic e-ecommerce, fintech and short-video businesses.
(Reporting by Samuel Shen and Scott Murdoch; Editing by Vidya
Ranganathan and Ana Nicolaci da Costa)
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