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Source: 20 Society
Author | Jia Yang
The Hong Kong stock market once again demonstrated what a “confidence collapse” would look like.
On the afternoon of August 16, a news that “Tencent is going to liquidate its holdings in Meituan” spread in the market. The scale of the reduction is roughly US$24.3 billion (about 165 billion yuan), accounting for about 17% of the total issued shares of Meituan. . Meituan’s stock crashed immediately, with a one-day drop of more than 12%, and its market value fell below one trillion. Other companies invested by Tencent, including Kuaishou, Bilibili, Weimeng, and Youzan also fell in varying degrees.
Tencent responded to this rumor and declined to comment. Then 36Kr quoted a “informed person” close to Tencent as saying that there were no plans to sell Meituan shares. Afterwards, Zhang Jun, general manager of the Marketing and Public Relations Department of Tencent Group, forwarded a screenshot of the insider’s refutation of rumors in the circle of friends, calling the foreign media “random rumors”.
Tencent should not reduce its holdings in such a way that the market does not understand this truth. Moreover, if only the qualifications of the company itself are considered, even if the reduction is true, there is no need to panic at all.
Since reducing its holdings in Southeast Asian e-commerce game giant SEA, Tencent has gradually begun to realize its “Half-Life”. To a large extent, this realization is the active approach to anti-monopoly supervision, rather than bearishness on the performance and business models of the invested companies.
Taking JD.com as an example, in December last year, Tencent reduced its holdings of JD.com shares worth US$16.4 billion in the form of dividends, and its shareholding in JD.com dropped from 17% to 2.3%. It is no longer the largest shareholder. Liu Chiping also stepped down as a director of JD.com.
However, after stripping away the strong bond at the capital level, the business cooperation between the two parties is still close. On June 29, 2022, JD.com announced on the Hong Kong Stock Exchange that it has renewed the strategic cooperation agreement with Tencent Holdings Co., Ltd. for a period of three years.
From Tencent’s past “realization” behavior, we can see that Tencent is unlikely to “smash the market” directly. Moreover, Tencent’s holdings are so large that it will be difficult to find rivals in scattered transactions in the secondary market once the large-scale reduction is made. The way of reducing JD.com has minimized the impact on the market.
At the beginning of August this year, Tencent reduced its holdings of Huayi Brothers for 3 consecutive days by means of bulk transactions and participation in refinancing securities lending. Huayi Brothers’ stock price has not been hit by the reduction since then, but has risen.
But today this kind of panic is really shrouded in the heads of all Chinese stock investors and cannot be ignored.
This “burning company”-style panic decline is almost a complete reversal of the “perpetual motion” logic in 2020.
Remember the jokes of investors at that time? In the third quarterly report of 2020, Li Auto has been chased in the secondary market soaring, Meituan’s profits have soared due to its holding of Li Li Auto shares, and Yum China’s profits have doubled due to its holding of Meituan shares. “As long as Yum China and Meituan buy a few ideal cars, the perpetual motion closed-loop can be perfectly realized.”
With each level of shareholding, the sales volume of the industrial end is leveraged, which is reflected in the market value of listed companies. This was actually an extreme case of optimism at the time.
The logic at that time was that investors were willing to bet on the Internet and future technology, and to conduct a DCF valuation (Discounted Cash Flow) for future market growth, that is, to measure the company’s current earnings with the expected future earnings. the value of.
The mutual shareholding of Internet companies has further strengthened the confirmation of the value of the target.
As one of the largest and fastest-growing Internet companies in China, Tencent has also shared the growth dividends of the entire Chinese Internet through investment. In the words of Li Zhaohui, general manager of Tencent’s investment and acquisition department, “connecting capital based on business platforms has not only made Tencent friends, but also made us stronger in social, payment, cloud and other fields.”
If Berkshire Hathaway is similar to a broad-based index, then Tencent is similar to a Chinese Internet ETF. Maybe it can be called “China Internet Win-Win Fund”.
But at the moment, people are worried that Tencent, the super ETF, will continue to reduce its heavy holdings.
Moreover, according to Tencent’s statement after reducing its holdings in JD.com, “The main strategic development direction of Tencent’s investment is to invest in those growth companies in the development period. When the invested company can continue to raise funds by itself, it will choose to withdraw, and Share the profits with shareholders”, Tencent listed a standard for reducing its holdings – it can continue to raise funds by itself.
Then, if Tencent reduces its shares in Meituan, Pinduoduo, Himalaya, Bilibili, and Kuaishou in the future, it will not be surprising. Moreover, according to Tencent’s previous holding reduction routine, the most likely way to reduce holdings at present is to sell through tools such as block trades after finding the receiver.
So here comes the problem. The reason why Tencent’s shareholding reduction effect is so strong and widespread is that the expected impact on a single company is actually a secondary factor. Rather, it is the expectations and confidence of the entire market in the future, and the story of the consensus among investors has changed again. In narrative economics, rational people do not exist, and people’s decisions are often swayed by the stories they believe. The impact of this consensus narrative will exceed even economists and policymakers’ expectations.
In the current story, the elements continue to increase. In addition to the slowdown in revenue of existing Internet companies and the impact of epidemic control on profits, the recent decoupling of the Chinese and American capital markets has been added. Today, Tencent echoes the regulatory trend of “opposing capital without expansion”. Rumors of a reduction in holdings…
In addition to the need for rational judgment on a single company, perhaps what the market needs more now is who can provide a new variable for the narrative?
(Disclaimer: This article only represents the author’s point of view and does not represent the position of Sina.com.)
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