Hong Kong’s inauspicious start to the new year continued Wednesday, as tech shares were bludgeoned in the worst rout since last summer.
The perpetually beleaguered Hang Seng Tech index dropped almost 5% (figure below), an egregious slide that laid bare an underappreciated vulnerability — namely, overlapping ownership and the possibility of declines associated with divestments.
Needless to say, Beijing’s ongoing anti-monopoly crackdown raises the odds of such divestments. The locus of concern is Tencent and its $185 billion portfolio.
Although Wednesday’s rout was exacerbated by concerns over US tech shares, which are under pressure from rising US yields, the proximate cause was Tencent’s decision to trim a stake in Sea Ltd.
Singapore’s Sea, Southeast Asia’s most valuable tech company, saw its US-traded ADRs plummet Tuesday (figure below), when Tencent sold billions in shares at a 7% discount to Monday’s close.
Sea’s chairman and CEO, Forrest Li, lost $1.5 billion in Tuesday’s slump (red in the figure, above). His net worth is down almost $10 billion since the shares peaked in October. (Don’t worry, he’ll be fine. He’s still worth $12 billion.)
Tencent’s disposal, which left the behemoth with a still large 18.7% stake, came just weeks after it distributed billions in JD.com shares as a special dividend. As Bloomberg helpfully noted, “the surprise move was seen as being in response to Beijing’s push to curb anticompetitive behavior and open up closed ecosystems.”
This all sounds somewhat convoluted, but it’s actually quite simple. Tencent, along with other large Chinese firms with sizable investments seen as incongruous with Beijing’s aggressive anti-monopoly stance, may sell additional stakes in an effort to placate the Party. Hence large losses for Chinese tech. Meituan fell double-digits Wednesday and JD shed 7%, for example.
Meanwhile, Hong Kong announced a bevy of new COVID containment measures, including a prohibition on indoor dining after 6 PM, the closure of bars and gyms and a ban on flights from a handful of countries, including the US.
Carrie Lam called this a “very critical moment” for the city. “We have to contain the pandemic to ensure there won’t be a major outbreak,” she said. “In a sense, we are racing with Omicron.”
The irony of the CPP moving aggressively on the anti-monopoly front is pretty rich (no pun intended).