Tencent’s Secret Santa Gift Of 457 Million Shares Of JD.com

Key News

Asian equities had a good day on light volumes and little news other than increased optimism that omicron won’t lead to the world ending. The Philippines had a great day +1.81% which I am sure made our main man in Manila Brian happy.

Tencent gained +4.24% after announcing it will reduce its position in JD.com from 17% to 2.3% by distributing 457 million shares of e-commerce company JD.com to Tencent shareholders’ on January 25th with shares distributed on March 25th. I would assume TCEHY holders, Tencent’s unsponsored US ADR will receive cash rather than shares. JD.com Hong Kong’s share class closed -7.02% though its intraday low was -11.17%.

Tencent’s strong relationship and investment in JD.com led to preferential treatment on Tencent’s social media platform WeChat. Tencent likely felt that the JD.com ownership violated or could be viewed as a violation of the new anti-competitive/anti-monopoly laws leading to the divestment and Tencent’s President Martin Lau stepping down from JD.com’s board. Tencent’s move is 100% shareholder-friendly as it highlights the significant valuation discount of the company to global peers. Tencent has a P/E of only 19 despite the high probability it will generate $90 billion of revenue in 2021.

The announcement weighed on other Tencent investment holdings such as Meituan, Kuaishou, Bilibili, and Pinduoduo as investors fear they will spin-off as well. JD.com is very different than these other companies from a size, scale, and profitability perspective so these fears are not valid in my opinion and are more aligned with the shoot first/ask questions later mentality of investors.

The Hang Seng gained +0.4% as volume increased +17% from yesterday which is only 64% of the 1-year average. Rare earth stocks outperformed along with the clean technology ecosystem after five companies will spin off their rare earth units into a new company called China Rare Earth Group.

Shanghai, Shenzhen, and STAR Board gained +0.57%, +0.18%, and +0.07% on volume +0.94% from yesterday which is 102% of the 1-year average. Worth noting China was one of the only markets globally with volumes up the day over day and above the 1-year average. The move is despite lockdown efforts in Xi’an to contain a coronavirus outbreak. In addition to clean energy ecosystem stocks, liquor stocks had a strong day in advance of the holidays. Foreign investors bought $391 million of Mainland stocks today via Northbound Stock Connect. Mainland Treasury bonds rallied, the currency was flat and copper managed a small gain.      

Investors were more focused on news of Premier Li holding an economic policy meeting focused on trade and currency stability and reports that provinces will support parents having more children through loans.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.37 versus 6.37 yesterday
• CNY/EUR 7.22 versus 7.20 yesterday
• Yield on 10-Year Government Bond 2.81% versus 2.83% yesterday
• Yield on 10-Year China Development Bank Bond 3.08% versus 3.09% yesterday
• Copper Price +0.66% overnight