Tencent Shares Skyrocket as Regulatory Pressure Eases

Tencent Holdings Ltd. shares have surged in recent weeks on signs that China is preparing to end its crackdown on major tech firms and on optimism about the country's reopening. The stock is now up nearly 100% from its recent lows.

Since Oct. 28, online giant has risen about 95% in Hong Kong, as approvals for industry funding and new games have begun to trickle in again. In a major tailwind for the industry, some policymakers have called for a halt to China’s harshest regulatory curbs. This is good news for the industry, as it may mean more opportunities for growth in the future.

Tencent has been given the green light to release two blockbuster films in China, as the country's crackdown on the entertainment industry appears to be easing.

The films, "Monster Hunt 2" and "Operation Red Sea", had been previously approved for release by China's film regulator, but were put on hold amid the crackdown.

Tencent's success in getting the films approved for release is seen as a sign that the Chinese government is beginning to loosen its grip on the entertainment industry. It comes after a number of high-profile films and TV shows were pulled from release or censored in recent months.

The Chinese government's approval of billionaire Jack Ma's Ant Group Co. to raise $1.5 billion is the clearest indication yet that it is easing up on regulation. The abrupt cancellation of the firm's initial public offering in 2020 marked the start of China's regulatory squeeze, which at one point wiped out more than $2 trillion from the sector's valuation.

Ride-hailing firm Didi Global Inc. has received approval to resume signing up new users, after its main apps were removed from app stores by regulators earlier this year. This is good news for the China internet industry, which has seen Didi's growth stall in recent months. With the ability to sign up new users again, Didi will be able to continue growing its business and providing a valuable service to people in China.

Tencent and Alibaba Group Holding Ltd. have seen their shares jump in recent months, reflecting investor optimism about China’s pro-growth policies and reopening after the pandemic.

The dramatic rebound in the Hang Seng Tech Index over the past three months is a sign that the tech sector is regaining investor confidence. Tencent has rejoined the club of the world's ten most valuable companies for the first time in six months, indicating that the once-uninvestable sector is regaining clout in portfolios.

According to Vey-Sern Ling, managing director at Union Bancaire Privee, valuations for Tencent and other Chinese tech companies still look reasonable despite recent rallies. Various geopolitical and domestic concerns have eased, and the government looks supportive. Earnings revisions for the sector should become increasingly positive in the future.