Chinese- and Hong Kong-listed stocks soared on Wednesday after China’s government pledged to support beleaguered markets.
The Hang Seng
HSI,
+9.08%
surged 9% as state-run Xinhua News Agency said the government would take a number of market-friendly steps.
The Shanghai Composite
SHCOMP,
+3.48%
rose 3.5%.
China’s financial stability and development committee called for monetary policy to support the economy, and that authorities should prudently introduce policies that have a contractionary impact.
The Chinese government also is working with U.S. authorities to support listings overseas, as the Securities and Exchange Commission last week identified Chinese companies that could be delisted over the issue of auditor access.
JD.com
9618,
+35.64%
JD,
+7.08%
jumped 36%, Alibaba
9988,
+27.30%
BABA,
-1.29%
rallied 27% and NetEase
9999,
+23.40%
NTES,
+3.79%
surged 23% in Hong Kong trade.
Other Hong Kong tech stars also jumped, including Meituan
3690,
+32.08%
and Tencent Holdings
700,
+23.15%.
The committee also said it would keep Hong Kong’s financial markets stable while enhancing regulatory communications and coordination with Hong Kong regulators.
“Having disappointed markets earlier in the week by not cutting interest rates, China’s state economic policy apparatus is taking significant coordinated steps to support risk sentiment. These include State Council support for overseas listings, engaging with the U.S. on ADRs, and perhaps most importantly, suggesting that regulation of its big tech firms will end soon. There are also promises to step-up support for the real estate sector,” said Stephen Innes, managing partner at SPI Asset Management.
Even with Wednesday’s surge, the Hong Kong index is down 14% this year, compared to the 11% drop for the S&P 500
SPX,
+2.14%.
The remarks didn’t address another factor that’s been weighing on Chinese stocks, the possibility of sanctions from the U.S. if the country provides arms to Russia.
JD.com plummeted Thursday after Tencent announced it will be giving most of its shares in the Chinese e-commerce giant away to its shareholders.
Tencent said it will declare a one-time dividend in which it will distribute more than 457 million Class A ordinary shares of JD.com to shareholders, with a total value of approximately 127.7 billion Hong Kong dollars (about $16.37 billion).
Tencent has investments in several companies, including other large Chinese internet companies like Meituan and Pinduoduo. While those investments have helped fuel growth, Blue Lotus Capital Advisors’ Shawn Yang said they could also raise concerns about Tencent’s size and influence.
“I think that basically it’s Tencent’s choice, right, to gradually reduce those shares and try to show to the public that you know … ‘we’re not that big as you think,'” Yang said. “That probably can reduce some of the concerns of its size and influence.”
Beijing has been cracking down on China’s domestic tech sector for months, citing concerns over potential monopolies and data security, slapping massive fines on companies like Alibaba and Meituan.
Yang said Tencent’s move may have stemmed from a desire to deflect attention away from itself rather than JD’s fundamentals. He explained JD’s e-commerce business has been “very resilient” this year compared with competitors Pinduoduo and Alibaba.
In its Thursday filing, Tencent said part of its strategy includes investing in companies early to support development and to exit when they become “consistently capable of self-financing their future initiatives.” Tencent said JD.com has reached that stage and that now is an “appropriate time” to distribute its stake among its shareholders.
JD.com said in a separate release that Tencent’s stake would fall from about 17% currently to around 2.3% after the move. It also said the two companies will continue to maintain their strategic partnership agreement.
Shares of JD.com in Hong Kong closed 7.02% lower. Tencent shares, on the other hand, surged 4.24%, bucking the overall trend among Chinese tech stocks listed in the city. The Hang Seng Tech index slipped 0.83% to 5,638.31.
A Tencent logo is seen in Beijing, China September 4, 2020. REUTERS/Tingshu Wang
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Move comes as Beijing cracks down on technology firms
JD.com shares plunge as much as 11.2%, Tencent up 4%
Tencent has no plans to sell stakes in other firms-source
BEIJING/HONG KONG, Dec 23 (Reuters) – Chinese gaming and social media company Tencent (0700.HK) will pay out a $16.4 billion dividend by distributing most of its JD.com (9618.HK) stake, weakening its ties to the e-commerce firm and raising questions about its plans for other holdings.
The move comes as Beijing leads a broad regulatory crackdown on technology firms, taking aim at their overseas growth ambitions and domestic concentration of market power.
Tencent said on Thursday it will transfer HK$127.69 billion ($16.37 billion) worth of its JD.com stake to shareholders, slashing its holding in China’s second-biggest e-commerce company to 2.3% from around 17% now and losing its spot as JD.com’s biggest shareholder to Walmart (WMT.N).
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The owner of WeChat, which first invested in JD.com in 2014, said it was the right time for the divestment, given the e-commerce firm had reached a stage where it can self-finance its growth.
Chinese regulators have this year blocked Tencent’s proposed $5.3 billion merger of the country’s top two videogame streaming sites, ordered it to end exclusive music copyright agreements and found WeChat illegally transferred user data.
The company is one of a handful of technology giants that dominate China’s internet space and which have historically prevented rivals’ links and services from being shared on their platforms.
“This seems to be a continuation of the concept of bringing down the walled gardens and increasing competition among the tech giants by weakening partnerships, exclusivity and other arrangements which weaken competitive pressures,” Mio Kato, a LightStream Research analyst who publishes on Smartkarma said of the JD.com stake transfer.
“It could have implications for things like the payments market where Tencent’s relationships with Pinduoduo and JD have helped it maintain some competitiveness with Alipay,” he said.
JD.com shares plunged 11.2% in early trade in Hong Kong on Thursday, the biggest daily percentage decline since its debut in the city in June 2020, before recovering partially to a 7% decline by 0450 GMT. Shares of Tencent, Asia’s most valuable listed company, rose 4%.
Shares of Tencent and JD on Dec 23
The companies said they would continue to have a business relationship, including an ongoing strategic partnership agreement, though Tencent Executive Director and President Martin Lau will step down from JD.com’s board immediately.
Eligible Tencent shareholders will be entitled to one share of JD.com for every 21 shares they hold.
PORTFOLIO DIVESTMENTS?
The JD.com stake is part of Tencent’s portfolio of listed investments valued at $185 billion as of Sept. 30, including stakes in e-commerce company Pinduoduo (PDD.O), food delivery firm Meituan (3690.HK), video platform Kuaishou (1024.HK), automaker Tesla (TSLA.O) and streaming service Spotify (SPOT.N).
Alex Au, managing director at Hong Kong-based hedge fund manager Alphalex Capital Management, said the JD.com sale made both business and political sense.
“There might be other divestments on their way as Tencent heed the antitrust call while shareholders ask to own those interests in minority stakes themselves,” he said.
A person with knowledge of the matter told Reuters Tencent has no plans to exit its other investments. When asked about Pinduoduo and Meituan, the person said they are not as well-developed as JD.com.
Tencent chose to distribute the shares as a dividend rather than sell them on the market in an attempt to avoid a steep fall in JD.com’s share price as well as a high tax bill, the person added.
Kenny Ng, an analyst at Everbright Sun Hung Kai, said the decision was “definitely negative” for JD.com.
“Although Tencent’s reduction of JD’s holdings may not have much impact on JD’s actual business, when the shares are transferred from Tencent to Tencent’s shareholders, the chances of Tencent’s shareholders selling JD’s shares as dividends will increase,” he said.
Technology investor Prosus (PRX.AS), which is Tencent’s largest shareholder with a 29% stake and is controlled by Naspers of South Africa, will receive the biggest portion of JD.com shares.
Walmart owns a 9.3% stake in JD.com, according to the Chinese company. Payments processor Alipay is part of Tencent rival Alibaba Group .
($1 = 7.7996 Hong Kong dollars)
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Reporting by Sophie Yu in Beijing and Scott Murdoch in Hong Kong; Additional reporting by Xie Yu, Selena Li, Donny Kwok and Eduardo Baptista in Hong Kong and Nikhil Kurian Nainan in Bengaluru; Writing by Jamie Freed; Editing by Subhranshu Sahu and Muralikumar Anantharaman
Our Standards: The Thomson Reuters Trust Principles.