Why Tencent Stock Is Plummeting Today


Uncertainty surrounding China’s stimulus plans is causing volatility for Tencent.

Tencent (TCEHY -8.04%) stock is sinking in Tuesday’s trading. The Chinese technology and media giant’s share price was down 8.4% as of 2:45 p.m. ET, according to data from S&P Global Market Intelligence.

Chinese stocks are losing ground today following indications that additional economic stimulus from the country’s government won’t be forthcoming in the near future. Tencent and many other China-based companies saw their valuations surge late in September after new stimulus initiatives were announced, but momentum is fading as investors are becoming more skeptical about the scope of the economic support.

Tencent and other Chinese stocks see reversal on stimulus commentary

Chinese economic officials indicated today that they are confident in the country’s ability to hit economic growth targets for this year. Economic planning chairman Zheng Shanjie said that the country would be shifting $28.36 billion from 2025’s budget to be spent this year in order to promote infrastructure investment projects and support local governments. But investors had been anticipating more substantial measures.

China has seen relatively soft economic recovery on the heels of the coronavirus pandemic, and investors have been looking for the country’s government to continue far-reaching stimulus initiatives to bolster the property market and consumer industries. With signs that stimulus spending might come in lower than expected following a wave of optimism, Tencent and other Chinese stocks are seeing big sell-offs today.

What comes next for Tencent stock?

Even on the heels of recent gains powered by government stimulus, Tencent stock is still down roughly 42% from its high. Meanwhile, the company grew its revenue and operating income 8% and 27% year over year, respectively, in its most recently reported quarter.

TCEHY PE Ratio Chart

TCEHY PE Ratio data by YCharts

Tencent stock is trading at roughly 18 times its earnings over the trailing-12-month period. While that valuation looks relatively cheap for an industry-leading company with substantial long-term growth potential, factors beyond business fundamentals could continue to play outsize roles in shaping the company’s stock performance.

In addition to macroeconomic concerns, investors also have geopolitical risk factors to consider. Tensions have been rising between the U.S. and China, and that has caused support from institutional investors in the U.S. to reduce positions in Chinese companies. If relations between the U.S. and China continue to worsen, that could create additional pressures for Chinese stocks.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tencent. The Motley Fool has a disclosure policy.



Source link

About The Author

Scroll to Top