Let me tell what emerging market equities did not need at a time when it’s starting to look like there’s blood in the water again for developing economy assets. They did not need another bad day for Tencent.
Earlier this month, the company turned in a rather stunning Q2 revenue miss and also recorded its first profit drop in ten years, putting pressure on the already downtrodden shares and catalyzing a bad morning for all manner of U.S.-listed ETFs with exposure to the company. The ugly Q2 was also bad news for Naspers and thus for fragile sentiment in South Africa.
On Friday, Tencent plunged again thanks to more worries about a sweeping crackdown on gaming in China. The market blamed the bad Q2 in part on Beijing’s decision to freeze approvals of game licenses, leading to bottlenecks in Tencent’s pipeline. Jitters about that ongoing issue were exacerbated Friday by a host of new government declarations aimed at fighting gaming addiction and tackling what authorities say is a worsening myopia problem in China.
The shares fell right out of the gate in early Hong Kong trading and never recovered.
Shares have now fallen in 10 of the last twelve weeks and are down some 28% from their January peak.
Coming into 2018, Tencent was an investor darling. In November, the company blew past Facebook in market value, making it the first Chinese tech name to join the ranks of the world’s five largest companies. Now, it’s the poster child for tech vulnerability, having fallen nearly twice as much as the Hang Seng since the January 23 peak.
And while this bad for tech, it’s worse for emerging markets. Tencent is a key piece of the puzzle for EM equity bulls and if yesterday was any indication, developing economy assets are not out of the woods just yet.