After hitting a six-year low in October 2022, Tencent Holdings Ltd (OTC:TCEHY) experienced a promising rally to a 17-month high in January. However, the company’s fortunes have since taken a downturn as Chinese investors have turned their backs on the tech giant.
Bloomberg data reveals that onshore investors have been net sellers of Tencent Holding shares for two consecutive months (June-July), marking the first such occurrence since 2021. In July, investors offloaded $375 million of Tencent shares through trading links between the Hong Kong, Shenzhen, and Shanghai exchanges.
Tencent Holdings (OTC:TCEHY), China’s most valuable company, has been grappling with concerns about its future prospects and a significant sell-off by its largest shareholder, Prosus NV. Beijing Eastern Smart Rock Asset Management expressed reservations about buying Tencent Holdings, citing the weight of the selling pressure from its major shareholder. Meanwhile, mainland investors acknowledge the company’s undervaluation but have been cautious due to the unpredictable market trends in Hong Kong.
The momentum in Tencent Holdings (OTC:TCEHY) has been stifled since June when Prosus NV announced its decision to divest its stake in the company. This move prompted Chinese investors, who had been steadfastly supporting Tencent since its listing in Hong Kong twenty years ago, to retreat from their backing. Consequently, Tencent Holdings’ shares have risen by only +15% since June, trailing behind the +28% surge in the Hang Seng Tech Index. Analysts at Forsyth Barr Asia Ltd speculate that investors might have switched to higher beta stocks amid the recent risk-on sentiment prevailing in the Chinese market.
Tencent Holdings faces a significant test with its upcoming Q2 earnings report, scheduled for mid-month. Fortunately, there are indications that the company’s outlook is on the mend. Tencent is anticipated to report a +14% year-on-year increase in Q2 revenue, primarily driven by robust growth in gaming revenue. Analysts, too, maintain a positive outlook for Tencent Holdings, as Bloomberg data indicates an overwhelming 70 buy ratings on the stock and just one sell rating.
While the majority of analysts remain optimistic about Tencent Holdings (OTC:TCEHY), some urge caution, suggesting that the stock’s recovery may take time. JPMorgan Chase emphasizes that although the company is likely to deliver a solid quarter, the weak sentiment surrounding the stock may slow down its share price recovery. Bloomberg Intelligence warns that while most Chinese internet companies, including Tencent, are expected to deliver impressive second-quarter numbers, there is a risk of disappointing performance heading into the fourth quarter.
Featured Image: Unsplash @ Donald Wu
Author Faith Yakubu 
