China’s biggest tech companies, which have generated rich returns for global investors in recent years, are losing appeal to many of their early supporters. The bleak outlook for the country’s tech sector has prompted investors to lock in their gains while they still can.
Hong Kong-listed gaming and social media giant Tencent is a case in point. Naspers, the South African internet group that first invested in the company more than 20 years ago, announced Thursday that it has sold 1.1 million shares of Tencent, reducing its stake to under 28%. The move not only shows that the company has clearly abandoned its earlier promise not to sell its stake, but also that other divestitures are afoot. Naspers’ Netherlands-based international investment arm, Prosus, signaled its intention by moving another 192 million shares worth about $7.6 billion into Hong Kong’s central clearing and settlement system.
Although the South African group says it is selling Tencent shares to fund the company’s own share buyback program, analysts point to another consideration that may also have prompted SoftBank to recently divest its stake in e-commerce giant Alibaba and Berkshire Hathaway to reduce electric vehicle maker BYD.
“The tech retreat of global investment giants reflects an important cyclical shift in China’s economy,” said Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital. “The outsized growth rates that created huge tech fortunes are unlikely to return.”
In August, Tencent reported the company’s first revenue decline since 2014. Whether the Shenzhen-based giant can return to growth seems highly uncertain under the current conditions. Its main gaming business remains under domestic regulatory pressure, and its once fast-growing advertising unit continues to struggle with an economy weakened by repeated lockdowns and a collapsing real estate sector.
It joins e-commerce giant Alibaba, whose Southeast Asian arm Lazada is now preparing to invade Europe as it seeks overseas opportunities. The company increased its stake on Thursday Assassin’s Creed Manufacturer Ubisoft to 11% in a deal valuing the latter at $10 billion. This investment comes just a week after buying a 16.25% stake elden ring developer FromSoftware for an undisclosed amount.
But Tencent and Alibaba have yet to convince investors they can make a comeback, and both companies’ shares have lost more than a third of their value over the past 12 months. And as negative sentiment continues, BYD also faces questions about maintaining its growth momentum.
Led by billionaire Wang Chuanfu, the Shenzhen-based company reported first-half results that were in the high end of its own guidance, but that didn’t stop legendary investor Warren Buffett from continuing to hold Berkshire Hathaway’s stake in the company to reduce.
Kenny Ng, a Hong Kong-based strategist at Everbright Securities, says one reason might be that the company’s valuation looks expensive, with the current price-to-earnings ratio above 100.
In addition, discounted government measures such as tax exemptions for EV purchases may have less of an impact going forward as consumer enthusiasm begins to wane.
“The industry may not necessarily grow as it did in the first half,” says Ng. “Government support will continue, but it would be difficult to sustain the momentum we’ve seen over the first six months, at least in the short term.”
Against this backdrop, big-name investors will aim to cash in on their gains, analysts say.
“In the face of relatively large uncertainties, institutional investors, particularly those who invested in early stages, will move to lock in profits,” Ng says, adding that Naspers, SoftBank, and Berkshire Hathaway have all reaped decent returns from the Chinese tech scene .