Hong Kong - For a clue on how bearish foreign investors
have become about Chinese stocks, take a look at Tencent Holdings.
The Shenzhen-based technology giant has tumbled 13
percent from its September record, wiping $35 billion off the value of its
shares, as overseas funds pulled money from Hong Kong and Chinese equities. The
company’s large weighting on the Hang Seng Index - at 10 percent - helped make
Hong Kong’s benchmark stock gauge one of the world’s worst performers last
quarter.
The company, which has more buy ratings than any other in
Hong Kong, is a victim of fund redemption pressures, according to Asset
Management One Singapore. Investors pulled about $409 million from
exchange-traded funds that buy Chinese and Hong Kong stocks in the week through
Dec. 21 as concern grew over a weakening yuan and tighter liquidity.
“If there are fund redemptions, it’s hard to avoid
selling Tencent because its weighting is so big," said Toshihiko Takamoto,
a Singapore-based portfolio manager at Asset Management One.
Tencent fell 0.4 percent at the midday break. The stock
was the second-largest drag on the Hang Seng Index in the fourth quarter, after
AIA Group. The Hang Seng Index tumbled 5.6 percent in the period as China’s
currency plumbed lows not seen since 2008 against the dollar and concern about
rising money market rates spurred a record meltdown in the nation’s sovereign
debt.
Such has been the exodus that the top US ETF focusing on
China suffered the biggest outflows among emerging markets, sending total
assets to the lowest level in a decade.
US Federal Reserve officials last month increased their
projections for interest-rate increases this year, triggering a surge in the
dollar and Treasury yields. Higher US bond yields will cause outflows from
emerging markets and Hong Kong, Australia & New Zealand Banking Group has
warned.
Read also: Tencent is now China's top company
The selloff hasn’t shaken analysts’ faith in the stock.
Tencent has 43 buy ratings, 2 neutral recommendations and zero sells, according
to analysts tracked by Bloomberg. The average 12-month target price implies a
26 percent advance over the next 12 months.
Analysts have their reasons to be optimistic. Tencent
shares have rebounded after each selloff to make new highs during its 12-year
listing, while the stock is the best performer on the Hang Seng Index in the
past five years with a 500 percent gain.
The company reported a 43 percent jump in its
third-quarter net income as its ability to attract Chinese gamers and social
media helped fuel advertising growth. Profit is expected to continue growing
for at least three more years, according to data compiled by Bloomberg.
There are signs investors are turning less bearish. The
stock gained 5.6 percent last week, its first weekly advance since late
October, and rebounding from a five-month low.
“If you focus only on its fundamentals, the stock is
still a buy," Takamoto said.
-With assistance
from Jeanny Yu, Emma Dai and Srinivasan Sivabalan.