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What does Alibaba, Tencent tie-up mean for Chinese big tech?

Alibaba and Tencent’s rumoured decision to partner up could mean the levelling of the playing field for investors, according to an IG analyst.

  • Alibaba Group Holding Limited (HK) share price jumped up 3.7% a day after it was reported that the company is seeking to accept Tencent’s WeChat Pay as a payment method on its e-commerce platforms
  • Tencent Holdings Ltd share price also rallied as much as 2.8%
  • IG analyst Yeap Jun Rong says this latest tie-up eases some regulatory concerns
  • On the other hand, it also begs the question of whether these steps are enough to appease authorities
  • On Tuesday, China’s antitrust regulator also approved Tencent’s proposed takeover of the country’s third largest search engine, Sogou Inc
  • Interested to trade Alibaba and Tencent shares at just a fraction of the cost? Open a full or demo account with us today to get started.

Alibaba, Tencent share price: why are they on the rise?

Chinese technology titans Alibaba Group Holding Ltd and Tencent Holdings Ltd are reportedly considering introducing their services on each other's platforms.

Both companies are seeking to remove restrictions that will allow Tencent's WeChat Pay to be accepted as a payment mode on Alibaba's online marketplaces - Taobao and Tmall, according to a Wall Street Journal report on Wednesday (14 July 2021).

A day after the report, Tencent shares rallied as much as 2.8%, while Alibaba shares spiked up 3.7%.

IG market strategist Yeap Jun Rong says that this potential tie-up implies that the landscape for China tech companies ‘may have shifted’.

‘Near-term, it may ease some concerns by showing that these big tech companies are taking steps to adhere to regulations, softening some regulatory risks from authorities,’ says Yeap.

‘On the other hand, there may be some uncertainty on whether authorities will be satisfied with just this move, or whether there may still be more to come. There will also be some uncertainty revolving around the impact to growth potential by opening up to competition.’

Despite this air of ambiguity, Yeap is optimistic that investors do not have to avoid China’s big tech in the long run. He says that as more countries start gaining more control over big tech firms, the playing field may ultimately be levelled.

However, in the short run, ‘investors may still be awaiting more clarity, considering that both Tencent and Alibaba are still largely in a downtrend, with a series of lower price highs and lower price lows since February’, he adds.

Are the tides turning for China’s big tech firms?

This latest move to collaborate comes amid an ongoing crackdown by the Chinese government on anti-competition practices among the country's top tech companies.

In April, Alibaba was fined a record US$2.8 billion, while Tencent was one of 34 companies that was instructed to improve its problematic practices.

Nevertheless, investors had other reasons to cheer this week.

On Tuesday, China's anti-competition body - the State Administration for Market Regulation, approved Tencent's proposal to acquire the country's third largest search engine Sogou Inc in a private US$3.5 billion undertaking.

Markets have been watching with bated breath on the outcome of the deal, as it would indicate where Beijing currently stands in its clampdown strategy.

In fact, the Hang Seng Index rose 1.9% following the announcement, recording its biggest gain in three weeks.

‘Regulators are still considering each deal case by case and not rejecting all of them. The sentiment is not that negative now,’ Castor Pang, head of research at Core Pacific Yamaichi, told Bloomberg. ‘Any good news will trigger buying on dips in the sector.’

What’s your call on Chinese big tech stocks?

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* Based on revenue excluding FX (published financial statements, June 2020).

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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