Tencent, Alibaba shares plunge following potential US investment ban
How will a listing ban impact the balance sheet and operations of both companies in the year ahead?
- Tencent Holdings Ltd (HKG: 0700) and Alibaba’s (HKG: 9988) share prices closed 4.7% and 3.9% lower on Thursday (07 January)
- The sell-off came after it was reported that the US government was mulling an investor ban on both companies’ securities
- Alibaba’s US shares (NYSE: BABA) also declined as much as 4% on the day
- It is now unclear how the ruling would impact Alibaba’s rumoured US$8 billion bond sale later this month
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Tencent and Alibaba share price: What’s the latest?
China’s two largest companies - Tencent and Alibaba - both saw their Hong Kong stocks close 4.7% and 3.9% lower respectively on Thursday (07 January 2021), after the US government was said to be weighing the possibility of adding both companies to its blacklist of Chinese companies.
If the ban is finalised, then US investors will be prohibited from trading the securities of both companies starting from 11 January 2021. A total of 35 firms have so far been blacklisted, including China's top chipmaker SMIC and oil giant CNOOC.
Spreads on Tencent’s dollar bonds also widened to as high as 20 basis points on the day, while Alibaba’s notes saw spreads expand to 15 basis points.
Alibaba’s American depositary shares also lowered as much as 4% on Thursday, eventually closing at US$225.40 each.
Shares have since recovered, with Tencent trading at HK$576.50 and Alibaba (Hong Kong) trading at HK$225.40 as at 12:07 HKT on Friday (08 January).
How will a potential ban affect Alibaba and Tencent?
Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam said that Alibaba may face ‘minimal financial and operational disruptions’ from a potential US investment ban.
‘The dual listing of its shares in Hong Kong should mitigate any risk of removal from US exchanges,’ they noted.
They added that Alibaba had about US$60 billion cash as of September 2020, and generated US$6 billion in free cash flow in the September-ending quarter.
However, with Alibaba reportedly planning to raise as much as US$8 billion through the sale of US dollar bonds later this month, it is unclear how a US ban would impact the firm’s fundraising efforts.
Furthermore, investors have also been ‘shifting their money’ away from tech companies like Tencent to banks, in light of the ‘many troubles and uncertainties for growth stocks right now’, according to Dickie Wong, executive director of research at Kingston Securities.
‘If the bans are implemented then it’d be a huge thing for the market,’ said Steven Leung, executive director at UOB Hong Kong. ‘It’s still too early to say. After the Biden administration starts, the policy could change again.’
What’s the share price outlook in 2021?
For the next 12 months, 46 out of 51 analysts have rated the Tencent stock a ‘buy’, with one calling it ‘overweight’ and four recommending ‘hold’.
The stock has also received an average 12-month target price of HK$688.40, according to data published by Wall Street Journal (WSJ). This represents an upside of 19.7% from Tencent’s last traded price of HK$575 as at 12:00 HKT on 08 January 2021.
Meanwhile, 48 out of 53 analysts have rated BABA a ‘buy’, with four calling it ‘overweight’ and one recommending ‘hold’, WSJ reported.
BABA has also received an average 12-month target price of US$314.63, according to data published by MarketBear. This represents an upside of 38.7% from Alibaba’s last traded price of US$225.40.
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