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What is the story about?
China’s Tencent Holdings Ltd. is ramping up buybacks as its Hong Kong-listed shares struggle to recover from a selloff that’s wiped out about $309 billion in market value since early October.
The Shenzhen-based technology behemoth has been repurchasing shares almost every trading day since mid-May, after it reported its slowest revenue growth in six quarters. At more than HK$9 billion ($1.1 billion) for June, the amount spent on buybacks is poised to be the biggest for any month this year, according to calculations by Bloomberg.
Tencent’s shares have lost more than a third of their value since an October high, driven largely by concerns over how the WeChat operator will monetise its hefty investments in artificial intelligence. They have also been hurt by investors’ growing preference for shares of pure-play AI model developers in China, which has left Internet and consumer companies on the sidelines.
“Investors are holding back — they want evidence that the money spent was worthwhile, but so far there hasn’t been much proof,” Agnes Ng, portfolio specialist at T. Rowe Price, said when asked about the underperformance by shares of internet firms. “The market is still waiting for them to re-monetise.”
Tencent in March said it plans to at least double investments in AI to over 36 billion yuan ($5.3 billion) in 2026. This month, the firm started testing a new AI assistant for WeChat, known as Weixin in China, as part of efforts to catch up with local peers in the AI race. A successful introduction of enhanced AI services in WeChat, China’s most popular messaging service with over a billion users, may be crucial in helping the firm monetise new technology.
The buybacks have likely played a role in easing the selloff, with Tencent’s stock down 1.8% so far this month, versus a 10% slump in the Hang Seng Tech Index. Even so, a lower finish in June would mark a fifth straight month of declines for Tencent’s shares, the longest losing run since 2018.
At 11.2 times one-year forward earnings on Friday, the stock’s valuation hit its lowest level on record. That’s cheaper than utility firm CLP Holdings Ltd., whose shares trade at more than 15 times.
Selling by investors in mainland China, who had provided support to Tencent’s stock during previous downturns, has added to the pressure. The cohort is set to be net sellers of the stock for a third straight month in June, according to data compiled by Bloomberg.
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Citigroup Inc. expects the pace of share repurchases among Chinese Internet companies to accelerate in a bid to retain investors, analysts including Alicia Yap wrote in a note on Friday. A report last week quoted a top executive at Meituan as saying that the food delivery firm was “severely undervalued” and plans to conduct share buybacks.
Shares of Meituan and Alibaba Group Holding Ltd. are down about 35% each so far this year.
“Overall sentiment in Hong Kong equities remains weak, with leading tech names such as Tencent and Alibaba the primary targets of selling,” said Ravi Wong, first vice president at Yan Yun Family Office (HK) Ltd. Funds continue to favour sectors at the upstream end of the AI supply chain, he said.
The Shenzhen-based technology behemoth has been repurchasing shares almost every trading day since mid-May, after it reported its slowest revenue growth in six quarters. At more than HK$9 billion ($1.1 billion) for June, the amount spent on buybacks is poised to be the biggest for any month this year, according to calculations by Bloomberg.
Tencent’s shares have lost more than a third of their value since an October high, driven largely by concerns over how the WeChat operator will monetise its hefty investments in artificial intelligence. They have also been hurt by investors’ growing preference for shares of pure-play AI model developers in China, which has left Internet and consumer companies on the sidelines.
“Investors are holding back — they want evidence that the money spent was worthwhile, but so far there hasn’t been much proof,” Agnes Ng, portfolio specialist at T. Rowe Price, said when asked about the underperformance by shares of internet firms. “The market is still waiting for them to re-monetise.”
Tencent in March said it plans to at least double investments in AI to over 36 billion yuan ($5.3 billion) in 2026. This month, the firm started testing a new AI assistant for WeChat, known as Weixin in China, as part of efforts to catch up with local peers in the AI race. A successful introduction of enhanced AI services in WeChat, China’s most popular messaging service with over a billion users, may be crucial in helping the firm monetise new technology.
The buybacks have likely played a role in easing the selloff, with Tencent’s stock down 1.8% so far this month, versus a 10% slump in the Hang Seng Tech Index. Even so, a lower finish in June would mark a fifth straight month of declines for Tencent’s shares, the longest losing run since 2018.
At 11.2 times one-year forward earnings on Friday, the stock’s valuation hit its lowest level on record. That’s cheaper than utility firm CLP Holdings Ltd., whose shares trade at more than 15 times.
Selling by investors in mainland China, who had provided support to Tencent’s stock during previous downturns, has added to the pressure. The cohort is set to be net sellers of the stock for a third straight month in June, according to data compiled by Bloomberg.
Also Read: More than 100 Venezuelans who were deported from the US hours before the earthquakes are missing
Citigroup Inc. expects the pace of share repurchases among Chinese Internet companies to accelerate in a bid to retain investors, analysts including Alicia Yap wrote in a note on Friday. A report last week quoted a top executive at Meituan as saying that the food delivery firm was “severely undervalued” and plans to conduct share buybacks.
Shares of Meituan and Alibaba Group Holding Ltd. are down about 35% each so far this year.
“Overall sentiment in Hong Kong equities remains weak, with leading tech names such as Tencent and Alibaba the primary targets of selling,” said Ravi Wong, first vice president at Yan Yun Family Office (HK) Ltd. Funds continue to favour sectors at the upstream end of the AI supply chain, he said.
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