Stocks of Chinese stocks, including Tencent (OTC: TCEHY), Securities in PDD portfolio (NASDAQ:PDD)And JD.com (NASDAQ:JD)rallied to start the week, up 5.4%, 9.5% and 5.8%, respectively, as of 3:50 p.m. ET Monday.
The synchronous rise in Chinese stocks follows favorable regulatory developments for Chinese companies and private stocks. Additionally, Tencent announced the early release of a hit mobile game that generated a lot of buzz.
Making Hong Kong a major financial center
Over the weekend, the South China Morning Post reported that the China Securities Regulatory Commission would seek to facilitate more listings on the Hong Kong Stock Exchange, after China’s new regulator introduced a series of reforms aimed at setting tougher requirements for companies listed on the exchange from Hong Kong. The move was widely seen as encouraging, as the measures aim to attract foreign capital back to Hong Kong and China.
Since 2021, the Chinese government has taken quite illiberal measures against the country’s big tech companies. But this led to these stocks being sold at exceptional valuations as foreign capital fled.
In this context, any move by government officials seen as market-friendly or encouraging foreign capital flows is likely to light a fire under these cheap stocks. And it seems we are seeing an example of that today.
In addition to the general good news on Chinese stocks, Tencent also had some notable company-specific news. It announced that it will release the mobile version of the hit game “Dungeon & Fighter Mobile” (DnF) ahead of schedule on May 21, after a very positive response to its beta test.
It is worth noting that DnF was developed by the Korean company Nexeon as a computer game in 2005. But Tencent, in addition to owning many game studios itself, also publishes games from other companies for the Chinese market . Tencent will release the wildly popular game for mobile in May, and there seems to be a lot of optimism surrounding its release. After all, the original version of the game has 850 million registered users worldwide and the free-to-play game has generated $22 billion in cumulative revenue since its launch.
Junghun Lee, CEO of Nexeon, said in a press release:
Based on the enthusiastic response from players to the beta test we offered earlier this year and the strong marketing campaign planned by Tencent, we are confident that Dungeon & Fighter Mobile can energize our large existing fan base and attract new players in the franchise.
After the announcement, Tencent received a positive rating from analysts. Jefferies Analyst Thomas Chong said the launch could help turn around Tencent’s domestic gaming revenue, which was down 3% last quarter. Chong also noted that Tencent has other emerging franchises that should also drive growth, as Chinese regulators appear to be taking a more lenient stance toward game approvals in 2024. Chong also named Tencent as his top pick in its coverage universe.
Chinese stocks are cheap
Degraded relations with the United States, government rule and a stalled economy have sent Chinese stocks tumbling to rock-bottom valuations.
In response, many Chinese growth stars have opted for two options. One is looking to foreign markets: PDD Holdings has done so, changing its name from Pinduoduo and re-domiciling to Ireland, while launching its e-commerce site Temu in foreign markets, such as the United States.
Another option sought by Chinese tech stocks is to slow growth but focus operations and increase margins while returning cash to shareholders. Tencent and JD.com appear to be doing so, with Tencent recently increasing its dividend by 42% while more than doubling its share buybacks. JD.com, for its part, revealed last week that it had repurchased $1.2 billion worth of shares in the first quarter of 2024 alone. At that rate, JD could cash out more than 11% of its shares this year, at its current market capitalization.
It’s understandable that U.S. investors are wary of Chinese stocks. However, for those who are comfortable with geopolitical risk in part of their portfolio, many high-quality Chinese names now appear to be a bargain, especially compared to their U.S. counterparts.
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Billy Duberstein has no position in any of the stocks mentioned. Its clients may hold shares of the companies mentioned. The Motley Fool holds positions and recommends JD.com, Jefferies Financial Group and Tencent. The Motley Fool has a disclosure policy.
Why Chinese stocks Tencent, PDD Holdings and JD.com jumped today was originally published by The Motley Fool
